XYZ Ltd. Carries on its business in Nairobi. The company has been reporting its profits using absorption costing system. During the financial year ended 30 September...

      

XYZ Ltd. Carries on its business in Nairobi. The company has been reporting its profits using
absorption costing system. During the financial year ended 30 September 2005, the following
summary statement was provided:
df22120191223.png

  

Answers


Martin
sade22120191222.png
apt22120191226.png

(b) Differences resulting from two methods stocks

Difference in profits is caused by the valuation of stocks where in absorption costing system are
valued at the total production cost while marginal costing system, stocks are valued at the variable
production cost. The higher value of closing stocks reduces costs released in the current period,
thereby increasing reported profits.
saq22120191228.png

Which of the two methods is better

For the above company absorption costing gives a higher profitability than the marginal costing
method. Generally having regard to the factors affecting the organization the accountant makes a
judgment as to which technique is more appropriate. Absorption costing is based on financial
accounts. Marginal costing system is usually used in the routine cost ascertainment procedures.
Marginal costing principles are used in planning and decision making.


marto answered the question on February 22, 2019 at 08:29


Next: Clearly outline the statutory responsibilities of an external auditor in relation to the audit of a company‘s financial statements
Previous: List the main control features one would expect to find in the following activities related to the buying function in an organization: (i) Buying of goods...

View More CPA Cost Accounting Questions and Answers | Return to Questions Index


Exams With Marking Schemes

Related Questions


  • Jogi Transporters operate in the transport industry. On 1 December 2005, the management acquired a new lorry to meet customer needs and cater for the increase...(Solved)

    Jogi Transporters operate in the transport industry. On 1 December 2005, the management
    acquired a new lorry to meet customer needs and cater for the increase in business volume.
    The following information relates to the initial and maintenance cost of the lorry.
    scrw22120191113.png

    Additional information:

    1. The lorry has an economic life of 4 years.
    2. The lorry has 6 tyres after each costing Sh.8000
    3. Service is carried out after every 5,000 kilometres.
    4. On average the lorry covers 20 kilometres per litre of fuel consumed.
    5. The lorry is projected to cover 100,000 kilometres in January 2006, 25,000 kilometres in

    Required:
    Prepare a schedule for the three months showing

    i. Variable costs per kilometer
    ii. Fixed costs per kilometer
    iii. Total costs per kilometer
    c) Fixed costs are actually variable cost
    With reference to (b) above explain whether you agree or disagree with the statement.
    February 2006 and 50,000 kilometres in March 2006.

    Date posted: February 22, 2019.  Answers (1)

  • Briefly explain the following terms as used in cost accounting: i. Mixed costs ii. Cost behaviour iii. Incremental cost(Solved)

    Briefly explain the following terms as used in cost accounting:

    i. Mixed costs

    ii. Cost behaviour

    iii. Incremental cost

    Date posted: February 22, 2019.  Answers (1)

  • Happy Holidays Resort operates a leisure complex in Watamu Town. The company offers a variety of facilities among which are sporting, accommodation, a shopping centre and...(Solved)

    Happy Holidays Resort operates a leisure complex in Watamu Town. The company offers a
    variety of facilities among which are sporting, accommodation, a shopping centre and a
    restaurant.
    The accountant of the resort is preparing a budget for the busy season which lasts for twenty
    weeks. Eight weeks out of the twenty are considered to be peak period.
    The accommodation facility comprises 80 single rooms and 40 double rooms. The prices charged
    for double rooms are 150% of the single room rate
    The following forecasts have been made:
    1 Accommodation facility : Daily variable costs will be Sh.500 for single room
    and Sh.700 for double room.
    : Fixed costs will be Sh.1, 700,000.
    2 Sporting facility : Resident charges will be Sh.200 per person per day.
    :Casual customers will be charged Sh.500 per day, for
    use of this facility
    3 Restaurant facility :This facility will generate an average contribution of
    Sh.300 per person per day
    : Fixed cost will be Sh.2, 500,000.
    4 Shopping centre facility : This facility will generate a contribution of
    Sh.2,000,000.
    5 Bookings : All rooms are booked for the peak season. For the
    remainder of the busy season occupancy is expected to
    be 60% for double rooms 70% for single rooms.
    : On average, there will be 50 casual customers per
    day. All customers are assumed to dine at the restaurant
    and use the sports facility.
    The resort's policy is that only two people can occupy a double room.
    Required:

    (i). Break – even rate per single room and double room.

    (ii). If a profit of Sh.10 million is budgeted for on the accommodation facility alone, compute the
    required rate per single and per double room.

    (iii). If the leisure complex aims at earning Sh.10 million on accommodation, prepare the budgeted
    complex statement for the complex

    Date posted: February 22, 2019.  Answers (1)

  • State the limitations of break – even analysis.(Solved)

    State the limitations of break – even analysis.

    Date posted: February 22, 2019.  Answers (1)

  • State the methods that a company can use to determine the break-even point or the output needed to achieve a target operating income.(Solved)

    State the methods that a company can use to determine the break-even point or the output needed
    to achieve a target operating income.

    Date posted: February 22, 2019.  Answers (1)

  • Urembo Ltd. Produces and sell a wide range of homecare detergents. Currently the company has sufficient spare capacity to undertake additional contracts. Additional information: 1. The company absorbs...(Solved)

    Urembo Ltd. Produces and sell a wide range of homecare detergents. Currently the company has
    sufficient spare capacity to undertake additional contracts.

    Additional information:

    1. The company absorbs production overhead using a rate of 200% on direct wages. The rate is
    derived from the following budgeted figures:
    Sh.
    fresh.png

    3. Urembo Ltd has a purchase order to supply Watalii Restaurant with 4,000 units of ,fresh'
    beauty soap at Sh.32 each.

    4. If the purchase order is accepted the normal budgeted sales of Urembo Ltd. Would be
    affected adversely.

    Required:

    (i). Advise the management of urembo Ltd on whether to accept the purchase order from
    Watalii Restaurant

    (ii). Explain the principles that you have applied in arriving at the conclusion in (b) (i) above.

    Date posted: February 22, 2019.  Answers (1)

  • Maridadi limited a privately owned company, specializes in the manufacture of these products namely, hair combs, hair rollers and hair bands. For the financial year commencing 1...(Solved)

    Maridadi limited a privately owned company, specializes in the manufacture of these products
    namely, hair combs, hair rollers and hair bands.
    For the financial year commencing 1 August 2008, the sales manager has prepared the following
    two possible sales forecasts:

    bans2212019.png

    3. Direct labour cost will be restricted to a maximum of sh. 250,000 in the period. This is
    assumed that labour is of the same grade and is freely transferable between products
    4. Other resources are expected to be available
    Required:
    i. Identify the principal budget factor
    ii. Calculate the sales budget mix that you would recommend to maximize profit
    iii. Compute the maximum profit that could be generated by Maridadi limited.

    Date posted: February 22, 2019.  Answers (1)

  • Rangi limited, a paint manufacturer produces two types of plant namely 'gloss' and 'Shine' The following information relates to the company?s projections for the year ending...(Solved)

    Rangi limited, a paint manufacturer produces two types of plant namely 'gloss' and 'Shine'
    The following information relates to the company‟s projections for the year ending 31 December
    2008.
    gloss22120191044.png
    wqa22120191045.png

    Required:

    i. Compute the break-even point of Gloss in units and break-even point of „Shine” in
    shillings

    ii. Given that customers purchase composite units of sox for 'Gloss' and four for 'Shine'
    calculate composite unit contribution margin.

    iii. Given that customers purchase composite units of six for 'Gloss' and one litre of 'Shine'
    calculate the composite contribution margin ratio.

    iv. Determine the break even sales in shillings assuming that 'Gloss and Shine' become
    components and that there is no change in the company's cost.

    Date posted: February 22, 2019.  Answers (1)

  • ABC limited manufactures and sells a single product branded “Zed”. The following data has been extracted from the budgets and standard costs to product “Zed”.(Solved)

    ABC limited manufactures and sells a single product branded 'Zed'. The following data has been
    extracted from the budgets and standard costs to product 'Zed'.

    on22120191038.png

    Date posted: February 22, 2019.  Answers (1)

  • Westlife company limited manufacturers three products X, Y, and Z The following data relating to the products is provided(Solved)

    Westlife company limited manufacturers three products X, Y, and Z
    The following data relating to the products is provided
    westliffe22120191033.png

    Required:
    i. Optimal production mix that would result in the maximum profit
    ii. Forecast ed profits statement using the optimal production mix in (b) (i) above

    Date posted: February 22, 2019.  Answers (1)

  • Reality Company Ltd. has increased its output from 12,900 kilogrammes (kg) in year 2008 to 17,300 kilogrammes (kg) in year 2009. Data for its four products...(Solved)

    Reality Company Ltd. has increased its output from 12,900 kilogrammes (kg) in year 2008 to 17,300
    kilogrammes (kg) in year 2009. Data for its four products in the year 2009 are as follows:
    shiling22120191024.png

    overhaul2211026.png

    Additional information:
    1. Labour is scarce and cannot be increased by more than 5% of the company's existing capacity.
    2. Fixed overheads are absorbed on the basis of direct labour cost.
    3. Visionary company Ltd. Has offered to supply 2,000 kilogrammes of product B at a final price of
    90% of reality Company Ltd.s selling price.
    4. The extra capacity created will enable reality Company Ltd to produce extra units of product A.

    Required:

    (a) Determine whether Reality Company Ltd. should accept the offer from Visionary Company Ltd.
    (b) Assuming that Reality Company Ltd. decides to outsource in order to create extra capacity,
    determine the best product to outsource among the four products.
    (c) Highlight four factors to consider before discontinuing the production of a product.

    Date posted: February 22, 2019.  Answers (1)

  • Leisure Enterprises is in the process of determining the viability of a concert in Nairobi. The following information shows the estimated cost of the concert: 1. Estimated...(Solved)

    Leisure Enterprises is in the process of determining the viability of a concert in Nairobi.
    The following information shows the estimated cost of the concert

    1. Estimated fixed costs are Sh. 600,000
    2. Variable costs are Sh. 100 per ticket sold
    3. The proposed price for the sale of a ticket is Sh. 200
    4. The expected sales are 8,000 tickets

    Required:

    i) Number of tickets that must be sold to break-even
    ii) Number of tickets that be sold to earn a target profit of Sh. 300,000
    iii) The profit that would be realized if 8,000 tickets are sold
    iv) The selling price to be charged to earn a profit of Sh. 300,000 on sale of 8,000 tickets, fixed
    costs of Sh. 600,000 and variable costs of Sh. 100 per ticket.
    v) Percentage margin of safety

    Date posted: February 22, 2019.  Answers (1)

  • Highlight six limitations of cost-volume-profit analysis.(Solved)

    Highlight six limitations of cost-volume-profit analysis.

    Date posted: February 22, 2019.  Answers (1)

  • Describe the difference between the accountant's and the economist's model of cost-volume profit analysis.(Solved)

    Describe the difference between the accountant's and the economist's model of cost-volume profit
    analysis.

    Date posted: February 22, 2019.  Answers (1)

  • PQR limited is a manufacturer of sports shoes. The company uses a standard system. The standard cost per pair of spots shoes is as follows:(Solved)

    PQR limited is a manufacturer of sports shoes. The company uses a standard system. The standard
    cost per pair of spots shoes is as follows:

    pig22120191007.png

    Additional information

    1. During the month of March 2011, production was 10,000 units as planned but he sales made
    were 8,000 units
    2. The total fixed production overhead variance during the month was sh. 100,000 adverse
    3. The standard fixed production overhead absorption rate was based on a budgeted activity of
    10,00 units
    4. There was no opening stock at the beginning of the month
    5. All units were sold at the standard selling price
    6. Other costs incurred during the month were as follows:

    adm22120191011.png
    Required:
    a) Income statement for the month of March 2011 using
    i. Absorption costing
    ii. Marginal costing
    b)

    i. Explain the reason why the income statement under absorption costing shows a different
    profit or loss figure compared with the income statement under marginal costing.

    ii. Reconciliation statement of the difference between the profit or loss under absorption
    costing and marginal costing in (a) above

    Date posted: February 22, 2019.  Answers (1)

  • Highlight six advantages of break-even charts.(Solved)

    Highlight six advantages of break-even charts.

    Date posted: February 21, 2019.  Answers (1)

  • Daiton Ltd. manufactures four products; AA, BB, CC and DD. The budgeted income statement for the month of June 2012 is as follows:(Solved)

    Daiton Ltd. manufactures four products; AA, BB, CC and DD. The budgeted income statement for the
    month of June 2012 is as follows:
    rh2212019439.png

    aacc.png

    Required;

    a) Calculate the shortfall in the hours available.
    b) Rank the products in order of priority based on the contribution per hour.
    c) Advise the management on the most profitable product mix.
    d) The management of Daiton Ltd. is considering whether to discontinue the manufacture of product
    BB which is' expected to realize a loss in June 2012.
    Advise the management whether product BB should be discontinued from production, citing two
    reasons for your advice.

    Date posted: February 21, 2019.  Answers (1)

  • Jino Ltd. produces four products namely; A, B, C and D. The following are the firm's budgeted figures for the month of July 2013(Solved)

    Jino Ltd. produces four products namely; A, B, C and D. The following are the firm's budgeted
    figures for the month of July 2013
    dop2212019433.png

    Additional Information:

    1. Material costs is sh. 10 per kilogramme and the maximize firm has a total of 500 kilogramme
    2. Labour is paid at sh. 10 per hour and is limited to 360 hours

    Required;-

    a) Determine the limiting factor
    b) Calculate the production mix that would maximize profit for the month

    Date posted: February 21, 2019.  Answers (1)

  • Agnes Kaseo and Peter Poah, decided to venture into the same business in the year 2012. They sell the same type product in the same type...(Solved)

    Agnes Kaseo and Peter Poah, decided to venture into the same business in the year 2012. They
    sell the same type product in the same type of market.
    They have provided the following budgeted income statement for the year ending 30 June 2014:
    sq2212019424.png
    1.png

    Required:
    Income statement for the month of April 2013 using:
    i) Absorption costing.
    ii) Marginal costing

    Date posted: February 21, 2019.  Answers (1)

  • Neb Ltd. manufactures three products namely; A, B and C which use the same inputs but in different quantities. In addition to these inputs, each unit of...(Solved)

    Neb Ltd. manufactures three products namely; A, B and C which use the same inputs but in
    different quantities.
    In addition to these inputs, each unit of product C uses a component MT200 which the company
    currently purchases from an external supplier for Sh.80 per unit.
    The following estimated data relates to the month of January 2014:
    mt2212019411.png

    Additional information:
    1. The monthly fixed costs amount to Sh. 150,000.
    2. The company has reverse engineered the component MT200 and has realized that it could make
    the component in-house at the following costs per unit:
    Sh.
    fft.png
    3. In the month of January 2014, the maximum availability of skilled labour is 5,400 hours but all
    other resources are readily available
    4. There would be no incremental fixed costs incurred as a result of making the component in house.
    5. The company bases all short-term decisions on profit maximization.
    6. The company would either buy the component or make it in-house; it would not use a mixture of
    the two options:
    Required:
    Advise the management of Neb Ltd. on the optimal production plan for the month of January 2014.

    Date posted: February 21, 2019.  Answers (1)