Caa 103: Introduction To Cost Accounting Question Paper

Caa 103: Introduction To Cost Accounting

Institution: Kca University question papers

Exam Year:2009

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UNIVERSITY EXAMINATIONS: 2009/2010
FIRST YEAR STAGE III EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 103: INTRODUCTION TO COST ACCOUNTING
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE (20 MARKS)
a) Differentiate between cost Accounting and Financial Accounting (5 Marks)
b) Orchid Company manufactures and distributes industrial air compressors. The following costs are
available for the year ended December 31, 2005. The company has no beginning inventory. In
2005, 1,500 units were produced, but only 1,200 units were sold. The unit selling price was

$4,500. Costs and expenses were: Variable costs per unit: Direct materials$ 800
Direct labor

$1,500 Variable manufacturing overhead$ 300
Variable selling and administrative

$70 Annual fixed costs and expenses: Manufacturing overhead$ 1,200,000
Selling and administrative expenses

$100,000 i). Compute the manufacturing cost of one unit of product using variable and absorption costing (4 Marks) 2 ii). Prepare a 2005 income statement for Orchid Company using variable costing (7 Marks) iii). Calculate the value of ending inventory under variable costing (2 Marks) iv). Calculate the cost of goods sold under absorption costing (2 Marks) QUESTION TWO (20 MARKS) a) Briefly explain the various factors that should be considered when deciding on the stock level to maintain for an organization (3 Marks) b) Raya Company developed the following information for its product: Per Unit Sales price$ 90
Variable cost 63
Contribution margin

$27 Total fixed costs$ 1,350,000
Instructions
Answer the following independent questions and show computations using the contribution margin
technique to support your answers.
i). How many units must be sold to break even? (2 Marks)
ii). What is the total profit that the company will earn if it manages to sell 52,000 units? Prepare
a variable income statement. (3Marks)
iii). If the company is presently selling 75,000 units, but plans to spend an additional

$135,000 on an advertising program, how many units must the company sell to earn the same net income it is now making? (4 Marks) iv). Using the original data in the problem, compute a new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by$ 198,000. (3 Marks)
QUESTION THREE (15 MARKS)
a) Highlight the main limitation of cost accounting (3 Marks)
b) Using diagrams differentiate between fixed cost and variable cost (3 Marks)
c) Find the EOQ were forecasted demand is 10,000units per month, ordering cost is Shs 400 per
order, unit cost Shs 8 per unit and its estimated that the carrying cost is 20% of the unit cost p.a
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(3 Marks)
Briefly explain the following concepts in relation to cotract accounts
I. Contract price
II. Architects certificate
III. Retention money (6 Marks)
QUESTION FOUR (15 MARKS)
a) A company can produce different types of goods on a machine. In this case the choice is made
from various alternatives. The company will prefer to produce that product that gives him the
maximum contribution.
A manufacturing company can produce 3 different products ABC. The information provided in
respect of these product for a specific period
A(shs) B(shs) C(shs)
Sales 150,000 220,000 240,000
Variable Cost:
Materials 50,000 120,000 150,000
Labour 25,000 40,000 80,000
V. Overhead 12,000 20,000 15,000
Fixed Overheads Shs 35,000.
Required:
Advice the comp regarding the choice of the products. (8 Marks)
b) Ihsan Sporting Goods Company manufactures aluminum baseball bats that it sells to university
athletic departments. It has developed the following per unit standard costs for 2005 for each
baseball bat:
Direct Materials Direct Labor Overhead
Standard Quantity 2 Pounds (Aluminum) 1/2 hour 1/2 hour
Standard Price

$4.00$ 10.00

$6.00 Unit Standard Cost$ 8.00

$5.00$ 3.00
In 2005, the company planned to produce 40,000 baseball bats at a level of 20,000 hours of direct
labor.
Actual results for 2005 are presented below:
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i). Direct materials purchased were 82,000 pounds of aluminum which cost

$344,400. ii). Direct materials used were 73,000 pounds of aluminum. iii). Direct labor costs were$ 187,200 for 19,500 direct labor hours actually worked.
iv). Total manufacturing overhead was $117,000.
v). Actual production was 38,000 baseball bats.
Instructions
Compute the following variances:
a) Direct materials price variance and direct materials quantity variance (3 Marks)
b) Direct labor price variance and direct labor quantity variance (4 Marks)

Caa 103: Introduction To Cost Accounting Question Paper

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