AFIN 210

COST AND MANAGEMENT ACCOUNTING

ASSIGNMENT

SEMESTER 2

TOTAL MARKS: 100

INSTRUCTIONS: ANSWER ALL THE FOUR QUESTIONS

LECTURER: Mrs Phales M. Mwanza

1
QUESTION ONE MULTPLE CHOICE
[1 MARK unless stipulated otherwise]

Choose the correct answer from the options provided for each of the following
questions. Write down only the letter of your choice next to the corresponding number;
e.g. 1.1 D.

1.1 Which statement best describes financial accounting …

A. Reports are prepared for managers and users inside the organisation
B. Provides a scorecard by which the past performance of a business is judged in
the form of financial statements which are used by stakeholders outside the
organisation
C. Conduct an official financial inspection of a company or its accounts
D. A and B only
E None of the above

1.2 Which statement best describes management accounting …

A. Reports are prepared for managers and users inside the organisation
B. Provides a scorecard by which the past performance of a business is judged in
the form of financial statements which are used by stakeholders outside the
organisation
C. Conduct an official financial inspection of a company or its accounts.
D. A and B only
E. None of the above

1.3 Which statement is not true for financial accounting …

A. Reports to stakeholders outside the organisation
B. Reports to stakeholders inside the organisation
C. Emphasises summaries of financial consequence of past events
D. Data must be objective and verifiable
E. Must follow GAAP and/or IFRS and/or IAS

1.4 In a manufacturing organisation inventory consists of three different components

except....
A. Direct material
B. Work-in-process
C. Finished goods
D. All of the above
E. None of the above

1.5 Which items below are examples of inventory piling …

A. Stock-in-transit
B. Average stock
C. Maximum stock
D. All of the above

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 E. None of the above

1.6 Manufacturing businesses include accounts which are unique to the industry. Which
statement contains all these unique accounts?
A. Direct materials, direct labour, manufacturing overheads
B. Work-in-process (WIP) or manufacturing account and finished goods
C. Sales and cost of sales
D. All of the above
E. A and B only

1.7 Direct materials, direct labour and factory overheads cost is closed off to the … at
the end of the financial year.
A. Trading account
B. Profit and Loss account
C. Work-in-process account
D. Finished goods stock account
E. None of the above

1.8 Which of the following are the costing methods that can be used to calculate the
costs of products..…
A. A Job costing
B. B Process costing
C. C Batch costing
D. D All of the above
E. E None of the above

1.9 A job costing system is …

A. Used where heterogeneous products are manufactured using the same
manufacturing facilities
B. A system of accumulating total manufacturing costs of a process where products
are manufactured during a particular period
C. A system of recording all costs for the total operations
D. None of the above
E. All of the above

1.10 Process costing system is …

A. Used where heterogeneous products are manufactured using the same
manufacturing facilities
B. A system of accumulating total manufacturing costs of a process where products
are manufactured during a particular period
C. A system of recording all costs for the total operations
D. A and C only
E. None of the above

1.11 The budgeted credit sales of Somdaka Traders for the first half of 2020 are
expected to be as follows:

3
 Month 2016 Budgeted credit sales (ZMW)
Jan 50 000
Feb 60 000
Mar 70 000
Apr 65 000
May 58 000
Jun 45 000
Debtors are expected to pay their debts as follows:
70% in the month following the month of sale
20% in the second month following the month of sale
7% in the third month following the month of sale
3% is written off as irrecoverable

What will the total receipts from debtors at the end of April 2016 be? [2 MARKS]
A. 45 500
B. 60 250
C. 63 700
D. 64 500
E. None of the above

1.12 To manufacture 1 A window frame unit requires 3 lengths of aluminium. One length
is 4 metres long. To manufacture 7 000 units how many metres of aluminium is
required? [2 MARKS]
A. 84 000
B. 28 000
C. 21 000
D. 7 000
E. None of the above

1.13 Which statement is incorrect …

A. The budget is the plan but actual results are the reality
B. Management should at selected intervals review the operating results by
comparing the actual results with the budgeted figures
C. A budget variance is simply the difference between the actual and budgeted
figure
D. All variances are considered significant
E. Business plans convey a variety of budgets expressing the expected activities of
the business for the near future
1.14 Contract costing covers large continuous jobs that can take years. Which
statement is true with regards to the features of long term contracts:
A. Long term contracts are large contracts such as building a bridge
B. Every contract is accounted for separately
C. The work is generally confined to a specific site
D. All of the above
E. A and B

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1.15 The contract price in contract accounting is …
A. The gross revenue due to the contractor in accordance with the contract
agreement
B. The total cost incurred to complete the project
C. The work which is generally confined to a specific site
D. The progress payments based on certified work for partial completion of the
project
E. The amount of money withheld on certified work as a contingency on comebacks

1.16 The concept of the time value of money tends to explain …

A. Why an amount of money received today is worth more than the same amount
received at some future date
B. How the rate of exchange for different currencies today always increase in value
in the future
C. How the interest rates are formulated by banks
D. All of the above
E. B and C
F.
1.17 The time value of money is important …
A. In any decision a financial manager makes
B. For individuals in optimising their portfolios
C. To set the rate of inflation every year
D. All of the above
E. A and B

1.18 The cost of money is called …

A. Profit
B. Rate of exchange
C. Interest
D. All of the above
E. A and B

[SUBTOTAL 20 MARKS]

5
QUESTION TWO OVERHEADS ABSORPTION

Colours Ltd has three production departments (Blue, Red and Green) and one service
department in its factory. A predetermined overhead absorption rate has been
established for each of the production departments on the basis of machine hours at
normal capacity. The overheads of each production department comprise directly
allocated expenses and a share of the overheads of the service department,
apportioned in the ratio 2:1:2 to departments Blue, Red and Green respectively. All
overheads are classified as fixed in nature. The actual overhead incurred in each
department was in line with the budget (i.e. there was no variance).
The following table of incomplete information is available concerning the apportionment
and absorption of production overheads for a period.
Production departments
Blue Red Green
Budgeted allocated expenses (ZMW) 125 649.25 152 316.45 159 326.15

Budgeted service department apportionment A B 249 653.10

Total Overheads per department C D E

Normal machine hours capacity 4 952 hours F G
Predetermined absorption rate (ZMW/machine hour) H 36.95 I
Actual machine utilisation J 6 943 hours 7 069 hours
Over/(under) absorption of overheads(ZMW) (68135.21) K (47592.72)

Required:
Calculate the missing figures for values A to K. [3 MARKS each]

[SUBTOTAL 33 MARKS]

QUESTION THREE INVENTORY CONTROL

Green Lantern, a pub & grill estimates that it will sell 10 000 beers per year which it will
purchase from a distributor in Luanshya. A beer costs K18.00 to purchase and K2.00 in
freight charges each. The company borrows funds at 9 % interest rate to finance
inventories. Green Lantern’s purchasing agent has calculated that it costs K50.00 to
place an order for beers and that the handling is K3.00 for each beer.

Required:
(a) Calculate the number of beers that Green Lantern should request in each order.
(Due to the nature of the question you are requested NOT to round off your answer at
this point) [3 MARKS]

(b) Calculate the annual number of orders.

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(Due to the nature of the question you are requested NOT to round off your answer at
this point) [3 MARKS]

(c) Calculate the total annual ordering cost.

(You may round off all answers to the nearest two decimal places from this point
forward) [3 MARKS]

(d) Calculate the total annual carrying cost.

[3 MARKS]

(e) Determine the order-size decision Green Lantern should make if the Luanshya
distributor offers a 5 % discount off the purchase cost excluding the delivery price for
minimum orders of 1 824 beers. [3 MARKS]

(f) Assuming sales are uniform throughout the year (365 days) and the lead time is 9
days; determine the reorder point at the EOQ level.
[3 MARKS]
(g) What is the financial consequence if only 7 orders are placed for the year instead of
ordering at the EOQ level? [3 MARKS]

[SUBTOTAL 21 MARKS]

QUESTION FOUR LABOUR COST

The following information relates to Maximax Ltd. It is a manufacturing business that is

considering the introduction of a piece-work incentive scheme in one of its departments,
which has 6 employees.

Current Payroll scheme:

Basic working week: 38 hours
Over-time premium: 20% of normal basic pay grade rate.
Normal grade A basic pay rate: K22 per hour.
Normal grade B basic pay rate: K18 per hour.

Employee Total hours worked Basic pay grade Normal units produced

1 41 A 170
2 44 A 170
3 40 B 150
4 38 B 150
5 38 B 150
6 45 A 180

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Piecework Incentive Scheme Proposal
Under the proposed piecework incentive scheme, the standard time allowance would be
20 minutes per unit. The piecework rate would be based on grade A basic hourly rates,
with a standard piecework enhancement of 6%. All employees would receive the same
piecework rate.

Required:
(a) Outline the purpose of an incentive scheme. [6 Marks]
(b) Calculate the gross pay due to each employee based on the current payroll terms.
[6 Marks]
(c) Calculate the standard piecework rate on the basis of the proposed piecework
incentive scheme. [6 Marks]
(d) Calculate the gross pay due to each employee under the terms of the proposed
incentive scheme. [6 Marks]

[SUBTOTAL: 24 MARKS]

[TOTAL 100 MARKS]