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cpa 2 cost accounting revision 1

By Omosa


PAPER 1 QUESTION ONE Mjengo Builders has been engaged to construct a building to serve as the head office of Posta Sacco Kenya. Construction work commenced on 1st July 2002 and the following information was extracted from Mjengo Builders accounting books for the year ended 30 June 2003: Shs. Contract price 1,500,000 Payment for direct wages 240,000 Accrued wages: 30th June 101,000 Materials issued 275,000 Materials returned to store 2,500 Plant and equipment on 1st July 150,000 Installation costs 125,000 Payment for direct expenses 75,000 Direct expenses accrued: 30 June 5,000 Materials on site: 30th June 100,000 Value of work certified 27,500 Cost of work not yet certified 800,000 Cash received 50,000 750,000 Required: a) The contract account as it appears in the books of Mjengo Builders. (15 marks) b) The valuation of work-in-progress (5 marks) (Total: 20 marks) QUESTION TWO Company XYZ Limited manufactures a product which passes through three processes. Given below is the data relating to the final process in the month of November: Shs Transfer from process 2: 10,000 units 300,000 Materials 230,400 Labour 105,600 Overheads 50,400 The normal process loss is estimated at 2%. During the month of November, 7,200 units were completed and transferred to finished goods. In addition, 2,000 units remained as work-in-progress whose degree of completion was 60% for materials, labour and overheads. The selling price of normal loss units is estimated at Sh 30 per unit. Required: a) Calculate the cost of the completed units transferred to finished goods. (10 marks) b) Calculate the value of work-in-progress at end of November. (5 marks) c) Assuming that any units of normal or abnormal loss were sold at a price of Shs 30 per unit, show the abnormal loss account as it would appear after the units are sold. Assume that abnormal loss units are complete in all respects. (5 marks) (Total: 20 marks) QUESTION THREE a) Explain five major features of contract accounting. (10 marks) b) A company has fixed costs of Shs 5,800,000 and a contribution margin ratio of 45.5%. The selling price per unit is Shs 100. Compute the break-even point. What effect would an increase of the contribution margin to 60% have on the BEP? (Show supporting calculations) (10 marks) (Total: 20 marks) QUESTION FOUR a) Distinguish between normal and abnormal loss in process accounts. (5 marks) b) Explain the concept of equivalent units in process accounts. (5 marks) c) STATE three types of standards that can be used in the design of a standard costing system. (6 marks) d) STATE four causes of unfavourable material usage variance. (4 marks) (Total: 20 marks) QUESTION FIVE The following data has been obtained from the records of Kings Company for the year ended 31st March 2003: Shs ‘000’ Nature of Cost Sales 12,000 Sales commission 600 Variable Local taxes on factory premises 12 Fixed Insurance on factory premises and equipment 2.4 Fixed Administrative salaries 600 Fixed Shipping expenses 360 Variable Factory leasehold expenses 120 Fixed Factory supervisory salaries 156 Fixed Insurance on office equipment 125 Fixed Depreciation on plant and equipment 360 Fixed Direct materials 4,800 Variable Direct labour 2,600 Variable Depreciation on office equipment 18 Fixed Other general and administrative expenses 75 Fixed Indirect labour 960 Variable Other factory overheads 200 Variable Production and sales for the year: 100,000 units of output REQUIRED: Draft the company’s profit and loss statement using the marginal costing approach. (20 marks) SECTION II QUESTION SIX a) With reference to C-V-P analysis, clearly distinguish between cost Volume Profit analysis and Break-even Point Analysis. (10 marks) b) What assumptions underlie the C-V-P Analysis? What is their effective implication? (10 marks) (Total: 20 marks) QUESTION SEVEN a) Explain four reason why coding of new materials and other stocks utilized by a company’s production department is important. (8 marks) b) Identify and briefly explain six characteristics that a reliable coding system should possess. (12 marks) (Total: 20 marks)

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