Accounting for Costs

Thursday 9 June 2011

Time allowed: 2 hours This paper is divided into two sections: Section A ALL 20 questions are compulsory and MUST be attempted Section B ALL FOUR questions are compulsory and MUST be attempted

Do NOT open this paper until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper T4

Certified Accounting Technician Examination Intermediate Level

Section A ALL 20 questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the Candidate Answer booklet to indicate your chosen answer to each multiple choice question. Each question within this section is worth 2 marks. 1 Which of the following states the responsibility of the manager of a profit centre? A B C D Responsibility Responsibility Responsibility Responsibility for for for for revenues but not costs costs but not revenues revenues and costs revenues, costs and investment

Cost estimates at two levels of output show: Output (units) Direct materials Direct labour Production overhead Non-production overhead 100,000 $ 50,000 40,000 35,000 12,000 137,000 150,000 $ 75,000 60,000 45,000 12,000 192,000

Using the high-low method, what is the estimated cost for an output of 120,000 units? A B C D $153,600 $155,182 $159,000 $164,400

Which of the following documents are used to update quantities in the inventory records? 1. 2. 3. 4. A B C D Goods received note Materials requisition Purchase order Purchase requisition 1 and 2 only 3 and 4 only 1, 2 and 3 1, 2 and 4

The purchases of an inventory item in a period were: Day 4 8 12 Units 250 500 250 Total cost ($) 975 2,000 1,125

There was no opening inventory. 700 units were issued on Day 15. The first-in first-out (FIFO) method is used. What is the valuation of the closing inventory? A B C D $1,170 $1,175 $1,325 $1,350

A component has the following ordering lead times and usage: Lead time (weeks) 15 20 10 Usage (units per week) 150 180 120

Average Maximum Minimum

What is the re-order level to avoid running out of inventory? A B C D 120 180 225 360 units units units units

In the context of materials control, what is the formula for calculating the maximum inventory control level? A B C D Re-order Re-order Re-order Re-order level + (maximum usage x maximum lead time) re-order quantity level + re-order quantity (minimum usage x minimum lead time) quantity (average usage x average lead time) quantity + (maximum usage x maximum lead time) re-order level

Which of the following is normally treated as a direct labour cost? A B C D Controllable idle time Uncontrollable idle time Overtime premium due to a temporary backlog in production Overtime premium at the specific request of a customer

Which of the following documents record how an employees time at work has been spent? 1. 2. 3. A B C D Clock card Job card Time sheet 1 and 3 only 2 only 2 and 3 only All three documents

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Which of the following is a measure of capacity utilisation? A B C D Actual hours worked budgeted hours Budgeted hours actual hours worked Budgeted hours standard hours of actual output Standard hours of actual output actual hours worked

10 What term is used for the arbitrary sharing of overheads among cost centres? A B C D Overhead Overhead Overhead Overhead absorption allocation analysis apportionment

11 A company manufactures a variety of products using different processes which involve both labour and machines. Which of the following is likely to be preferred as the basis for production overhead absorption? A B C D Blanket rate per actual machine hour Blanket rate per unit of product Predetermined rates per direct labour hour Predetermined rates per $ of sales

12 Which of the following may result in fixed overheads being over-absorbed? 1. 2. 3. 4. A B C D Activity above budget Activity below budget Expenditure above budget Expenditure below budget 1 1 2 2 and and and and 3 4 3 4

13 The following details relate to production overheads for a period: Absorption rate Actual machine hours Budgeted machine hours Over-absorption $1500 per machine hour 4,220 4,130 $230

What was the actual production overhead expenditure in the period? A B C D $61,720 $63,070 $63,300 $63,530

14 What should be included in product costs when valuing inventory using absorption costing? A B C D Direct Direct Prime Prime materials + direct labour + direct expenses only costs + variable production overheads only costs + production overheads only costs + production overheads + non-production overheads

15 25,000 units of a companys single product are produced in a period during which 28,000 units are sold. Opening inventory was 7,000 units. Unit costs of the product are: Direct costs Fixed production overhead Fixed non-production overhead $ per unit 1620 760 290

What is the difference in profit between absorption and marginal costing? A B C D $22,800 $30,400 $31,500 $42,000

16 6,150 kilograms (kg) were input to a manufacturing process in a period during which output was 5,820 kg. The normal weight loss in the process is 10%. What was the abnormal gain/loss? A B C D 285 285 330 330 kg kg kg kg abnormal abnormal abnormal abnormal gain loss gain loss

17 7,000 units were started in a manufacturing process during a period. Completed output from the process in the period was 5,400 units. The remaining units were 70% complete, as to both materials and conversion costs, at the end of the period. There was no work-in-progress at the beginning of the period and no process losses. What were the equivalent units of work-in-progress at the end of the period? A B C D 480 1,120 4,900 6,520

18 Conversion costs incurred in a process in a period totalled $72,000. There was no opening work-in-progress. Output from the process in the period was 21,000 finished units. The work-in-progress at the end of the period, of 1,600 units, was 40% complete. What was the conversion cost per unit (to two decimal places of $) in the period? A B C D $319 $328 $333 $343

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19 $10,000 was invested in a savings account on 1 January year one. Compound interest at 5% per annum accumulated in the account for the period to 31 December year four. There were no withdrawals over the period. What total amount was in the account after the interest payment on 31 December year four? A B C D $11,500 $11,576 $12,000 $12,155

20 A company plans to invest $50,000 in a non-current asset. The company expects to use the asset for 15 years at which time it is expected to have a residual value of $20,000. The expected annual cash inflows, at the end of each year, are $5,000. What is the payback period of the investment? A B C D 6 years 9 years 10 years 15 years (40 marks)

Section B ALL FOUR questions are compulsory and MUST be attempted 1 (a) The following shows a ledger account which has been extracted from the accounting system of a business: Raw materials inventory account $ 6,860 Work-in-progress account 129,320 Production overhead account Closing balance 136,180 $ 124,320 2,170 9,690 136,180

Opening balance Trade payables account

Required: State whether the business is using an integrated or an interlocking accounting system and explain your reasoning. (4 marks) (b) Describe: (i) the main characteristic of job costing; (2 marks) (2 marks)

(ii) how the concept of a cost unit is applied in job costing. (c) State the costing term that is defined as:

Expenditure on labour, materials or services which cannot be economically identified with a specific saleable cost unit. (2 marks) (10 marks)

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The following information relates to a hotel for a 30-day period: Number of bedrooms Average bedroom occupancy Revenue for accommodation Revenue in restaurant Number of meals served Cost of restaurant food Restaurant payroll costs Laundering costs Cleaning costs General overheads 90 78% $157,950 $44,760 1,420 $14,760 $12,240 $8,240 $26,200 $68,900

There are two profit centres in the hotel: accommodation and restaurant. Cost apportionment is as follows: Laundering costs: 75% to accommodation; 25% to restaurant. Cleaning costs: 90% to accommodation; 10% to restaurant. General overheads: on the basis of sales revenue.

Required: Calculate for the period the: (a) Accommodation revenue per occupied bedroom per night. (b) Total costs in each profit centre. (c) Accommodation cost per occupied bedroom per night. (d) Restaurant profit/(loss) per meal served. (5 marks) (9 marks) (2 marks) (4 marks) (20 marks)

Company X is considering two capital investment projects (Projects A and B). Project A requires an investment of $90,000 followed by an estimated constant annual cash inflow, at the end of each year, of $31,000 for four years. Project B requires investment of $70,000 followed by an estimated constant annual cash inflow, at the end of each year, of $8,500 in perpetuity. The cost of capital is 10% per annum. The following discount factors are provided: Year 1 2 3 4 Discount rate: 5% 0952 0907 0864 0823 3546 10% 0909 0826 0751 0683 3169 15% 0870 0756 0658 0572 2856 20% 0833 0694 0579 0482 2588

Required: (a) Calculate the net present value of Project A. (b) Estimate the internal rate of return of Project A. (c) Calculate the net present value of Project B. (4 marks) (7 marks) (4 marks) (15 marks)

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A company manufactures a single product which it currently sells for $1000 per unit. The following estimates are available for the next period: Sales Variable costs Fixed costs 6,000 units $600 per unit $15,000

Based on the above, the break-even point for the period has been calculated as 3,750 units. If the selling price is increased to $1100 per unit, sales are estimated to fall to 5,000 units in the period, with no change in unit variable costs or total fixed costs. Required: (a) If the selling price is increased to $1100 per unit for the next period: (i) Calculate, in units, the break-even point and the margin of safety; (5 marks) (5 marks)

(ii) Explain why the estimated break-even point and margin of safety would both reduce.

(b) If the selling price remains at $1000 per unit, calculate the sales volume (units) that would be required to achieve a profit of $10,000 in the period. (5 marks) (15 marks)

End of Question Paper

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