CHALIMBANA UNIVERSITY

Integrity. Service. Excellence

SCHOOL OF BUSINESS AND ENTREPRENEURSHIP

DEPARTMENT OF ACCOUNTING AND FINANCE

COURSE: COST AND MANAGEMENT ACCOUNTING

BCM 2100

ASSIGNMENT 1

DUE DATE: 20TH APRIL, 2022

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SECTION A

Answer ALL the 10 objective test questions in this section

1. The annual use of an item is 10,000 units. The cost of placing an order is K90,000 and the cost of
holding one unit in stock for one year is K4,500. What is the Economic Order Quantity?

A. 632.46 units
B. 532.46 units
C. 400,000 units
D. 63,246 units (2 marks)
2. Various costs will increase by jumps when certain levels of activity are attained. These are
commonly referred to as Step functions or stepped costs. Which of the following is usually
classified as stepped cost?
A. Inventory of raw materials
B. Business rates
C. Supervisor’s wages
D. Telephone (2 marks)
Data for questions 3 and 4

Budgeted labour hours 8,500

Budgeted overheads K 148,750
Actual labour hours 7,928
Actual overheads K 146,200

3. Based on the data given above, what is the labour hour overhead absorption rate?

A. K 17.50 per hour

B. K 17.20 per hour
C. K18.44 per hour
D. K18.76 per hour (2 marks)

4. Based on the data given above, what is the amount of overhead under-/over-absorbed?

A. K 2,550 under-absorbed
B. K 2,529 over-absorbed
C. K 2,550 over-absorbed
D. K 7,460 under-absorbed (2 Marks)

5. A Ltd has fixed costs of K 60,000 per annum. It manufactures a single product that sells for
K20 per unit. Its contribution to sales ratio is 40 per cent. A Ltd.’s breakeven point in units
is:
A. 1,200
B. 3,000
C. 5,000
D. 7,500 (2 marks)

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6. B Ltd manufactures a single product which it sells for K 9 per unit. Fixed costs are K 54,000
per month and the product has a variable cost of K 6 per unit. In a period when actual sales
were K 180,000, B Ltd.’s margin of safety, in units, was:
A. 2,000
B. 14,000
C. 18,000
D. 20,000 (2 marks)
7. Management Accounting is concerned with planning, control and decision making. Which
of the following relates to planning?
A. Preparation of annual budget for a cost centre
B. Revise the budget for a cost centre
C. Compare the actual and expected results for a period
D. Implement decisions based on information provided
(2 marks)

8. The following data relate to two output levels of a department:

Machine hours 18,000 20,000

Overheads K 380,000 K 390,000

The variable overhead rate was K 5 per hour.

The amount of fixed overhead was
A. K 230,000
B. K 240,000
C. K 250,000
D. K 290,000

9. A unit of product or service in relation to which costs are ascertained is known

as:
A. Cost centre
B. Cost unit
C. Cost object
D. Direct cost

10. Overtime premium is

A. The additional amount paid for hours worked in excess of basic working week
B. The additional amount paid over and above the normal hourly rate for hours worked on excess
of the basic working week
C. The additional amount paid over and above the overtime rate for hours worked in excess of
the basic working week
D. The overtime rate (2 marks)

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SECTION B
Answer all the two (2) questions in this section. Each question carries 25 marks.
Question One
Mose Limited buys and sells mobile phones and accessories. Mose Ltd purchases in bulk to attract
discounts hence selling at competitive prices. Moses Bwalya, the chief executive officer has asked
you to help in the accounting and valuation of inventory. The following information was made available:

March 1 balance b/f 1,400 units at K800 per unit

Purchases:
Date Quantity (Units) Price(K/unit)
March 3 800 1,200
March 6 400 1,400
March 12 1,000 1,800
March 23 500 2,100
March 25 500 2,100
March 26 200 2,250
March 29 350 2,300
March 30 600 2,350
March 31 650 2,400

Sales:
Date Quantity (Units) Price/(K/unit)

March 2 750 1,500

March 5 315 1,750
March 10 650 2,200
March 15 650 2,455
March 18 800 2,455
March 24 550 2,650
March 27 270 2,700
March 28 800 2,700

Required:
(a) Prepare the inventory valuation sheet using the following:
(i) First in Last in (FIFO) (6 marks)

(ii) Last in first out (LIFO) (6 marks)

(iii)Weighted Average (AVCO) (5 marks)
(b) Prepare the profit statement using all the three methods above (a) and comment on the results
(3 marks)

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(C) Mose Limited is reviewing its inventory control policy with regard to materials. You are told that
the cost of making one order is K100, the cost of holding one unit for one year is K0.25 and the annual
demand for phones is 80 000. There is neither lead time nor buffer inventory.
(i) Calculate the Economic order quantity (EOQ) (2 marks)
(ii) Calculate the annual holding costs and annual ordering costs using the EOQ.
(3 marks)
[Total 25 marks]

Question Two

Simasiku Ltd manufactures components for bicycles. The factory, in which the company
undertakes all its production, has two production departments namely: Cutting and Shaping and
two service departments (Stores and Maintenance). The information below was extracted from
the company’s budget for its financial year ended 31st March 2021.

Direct Costs:
K’000
Cutting Department 288
Shaping Department 420

Allocated Overhead Costs:

K’000
Cutting Department (Cutting) 28
Shaping Department (Shaping) 32
Stores Department (Stores) 7
Maintenance Department (Maintenance) 5.6

Other Production Overheads:

K’000
Factory rent 1,050
Factory building insurance 140
Plant & machinery insurance 78
Plant & machinery depreciation 117
Canteen subsidy 300

The following additional information is also provided:

Basis Cutting Shaping Stores Maintenance

Floor area (square metres) 36,000 24,000 6,000 4,000
Value of plant & Machinery (K) 600,000 100,000 50,000 30,000
Number of stores requisitions 2,000 1,000 - -
Maintenance hours required 5,400 4,000 600 -
Number of employees 68 120 8 4
Machine hours 24,000 4,400 - -
Labour hours 18,000 30,000 - -

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The annual demand for the components is 360,000.

Required:

(a) Prepare an overhead analysis sheet based on the above information. You must clearly state
the basis used for any apportionments. (14 marks)

(b) Calculate the most appropriate overhead rate for each production department.
(4 marks)
(c) The partial cost per each component is as follows:

Cost item K/unit

Direct material 50
Direct labour 27

Calculate the total cost per component. (2 marks)

(d) Discuss why most organisations use predetermined overhead absorption rates as
opposed to actual overhead absorption rates (5 marks)

[Total 25 marks]

END OF ASSESSMENT

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