SUGGESTED SOLUTION
A4 – COST ACCOUNTING
NOVEMBER 2022
ANSWER 1
A:
i)
ii)
iii)
iv)
v)
C
A
D
D
A
USING LIFO
Date
Description
vi)
10/10
16/10
20/10
25/10
29/10
Purchases
Issue
Purchase
Issue
Purchase
FIFO
Date
Description
10/10
16/10
20/10
25/10
Purchases
Issue
Purchase
Issue
29/10
Purchase
Receipts
Units
4,000 * 500
Issues
Units
3,900 * 500
1,200 * 600
1,100 * 600
2,800 * 750
Quantity
Units
4,000
100
1,300
200
3,000
Balance
Value
TZS
2,000,000
50,000
770,000
110,000
2,210,000
C
vii)
A
Weighted Average
Receipts
Units
4,000 * 500
Issues
Units
3,900 * 500
1,200 * 600
2,800 * 750
Balance
Quantity
Value
Units
TZS.
4,000
2,000,000
100
50,000
1,300
770,000
100*500 (50,000)
1,000*600 (600,000) 200
3,000
Receipt/(Issues)
Units
120,000
2,220,000
Purchase
Value
Price
Weighted
TZS.
500
TZS.
2,000,000
(1,950,000)
TZS.
500
100
Average price
10/10
16/10
Purchases
Issue
20/10
Purchase
25/10
Issue
29/10
viii)
Purchase
4,000
(3,900)
50,000
1,200
1,300
(1,100)
200
2,800
3,000
D
200 units *(3/60 hrs per unit)*1,800 per hour
Questions & Answers November2022
500
600
750
720,000
770,000
(651,541)
118,459
2,100,000
2,218,459
592.31
592.30
______
739.49
= 18,000
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ix)
x)
C
Joint costs apportioned to F: ((33,000/(42,000 + 33,000)) * 35,000,000
TZS 15,400,000
Closing inventory valuation (FF): (3,000/33,000)* (15,400,000 + 6,600,000)
= 2,000,000
A
B:
LIST A
LIST B
(i)
False
(ii)
True
(iii)
True
(iv)
True
(v)
False
LIST A
LIST B
(i)
B
(ii)
F
(iii)
G
(iv)
H
(v)
J
C:
ANSWER 2
a) Ordering cost and holding cost
Ordering cost
=
number of orders * ordering cost per order
=
5,6250/1,125 * TZS.10,000
=
TZS. 500,000
Holding cost
=
=
=
Average inventory * Holding cost per unit
1,125/ * TZS. 500
TZS. 281,250
Ordering and holding cost
=
=
TZS. 500,000 + 281,250
TZS.781,250
b) To calculate explain the Economic Order Quantity
E0Q =
2 * 10,000 * 56,250
500
EOQ
=
1,500 units
This is the order quantity that minimizes ordering and holding costs.
c) Difference in the ordering and holding costs between the order quantities suggested in
parts (a) and (b)
New
Original
Difference
Ordering Cost
TZS.
TZS.
TZS.
56,250/1,500*TZS.10,000
375,000
500,000
125,000
Holding Cost
1,500/2*TZS.500
375,000
750,000
281,250
781,250
93,750
31,250
(d) Existing Cost
Material (56,250 x TZS. 3,500)
Ordering cost
Holding cost
Total Inventory cost
Questions & Answers November2022
TZS.
196,875,000
375,000
375,000
197,625,000
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Revised Cost
Material (Sh.196,875,000 * 95%)
Ordering cost (56,250/5,625 *10,000)
Holding cost (5,625/2*500)
Total inventory cost
TZS.
187,031,250
100,000
1,406,250
188,537,500
Therefore, availing of the discount is financially worthwhile. There is a saving of Sh.
9,087,500. However, this can also buy the cost of storage up and depending on the type of
merchandise it can get out of fashion or absolute. Therefore, other factors should be
considered before accepting such a proposal.
(Alternatively, student could look at the impact on each cost).
ANSWER 3
a) Cost statement
Workings
Standard cost card for one unit of product
Direct materials 10kg * Sh. 145 per kg
Direct labor 3.5 hours * Sh. 1,245 per hour
Variable production overheads 3.5 hours * Sh. 310
Variable production costs
Units
Direct material
Direct labor
Variable production overheads
Total variable costs
Fixed production overheads
Total production cost
b) Calculation of variances
i)
Material price variance
ii)
iii)
iv)
25,000
Fixed budget
TZS.
36,250,000
108,937,000
27,125,000
172,312,500
17,500,000
189,812,500
=
=
=
Material usage variance
=
=
=
Direct labor rate variance
=
=
=
Direct labor efficiency variance
=
=
TZS.
1,450
4,357.50
1,085
6,892.50
27,000
Flexed budget
TZS.
39,150,000
117,652,500
29,295,000
186,097,500
17,500,000
203,597,500
27,000
Actual result
TZS.
39,487,500
119,070,000
30,618,000
189,175,500
17,240,000
206,415,500
(SP – AP) * AQ
[145 – (39,487,500/263,250)] * 263,250
Sh. 1,316,250 A
(SQ – AQ) * SP
[(10 * 27,000) – 263,250] * 145
Sh. 978,750 F
(SR – AR) * AH
[1,245 – (119,070,000/97,200] * 97,200
1,944,000 F
(SH – AH) * SR
[(3.5 * 27,000) – 97,200] * 1,245
Sh. 3,361,500A
c) Reasons for variances (any two each variance)
Material price variance:
• The company may have bought in rush purchase
• May be it deals with a new supplier
• Material shortage
• May be the quality of materials was improved
Questions & Answers November2022
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Material usage variance:
• More efficiency workers and supervision were employed
• Higher quality of materials were purchased
• Fewer materials that the standard quality was used in the production process
• The purchase of more efficient machinery during period.
Direct labor rate variance:
• Incorrect standards. The labour standard may not reflect recent changes in the
rates paid to employees.
• Pay premiums. The actual amounts paid may include extra payments for shift
differentials or overtime
• Benefits changes
• Employment of low skilled labor that attract low wages.
Direct labor efficiency variances:
• Hiring of lower skilled labor than the standard
• Decrease in staff morale and motivation
• Inexperienced employees for the new jobs
d) Briefly explain the meaning of the following terms.
Ideal standard costs
Standard costs based on idea conditions i.e. 100% efficiency is expected of workers,
machinery and management.
Attainable standard costs
Standard costs are more realistic that ideal standard costs. As long as all the factors of
production are made as efficient as possible before standard are set, they represent
realistic figures that are capable of being met.
ANSWER 4
(a)
(i)
Cost Allocation and Cost Apportionment
Cost allocation and cost apportionment are the two procedures which describe the
identification and allotment of costs to cost centers or cost units. Cost allocation refers
to the allotment of all the items of cost to cost centers or cost units whereas cost
apportionment refers to the allotment or proportions of items of cost to cost centers or
cost units Thus, the former involves the process of charging direct expenditure to cost
centers or cost units whereas the letter involves the process of charging indirect
expenditure to cost centers or cost units.’’
For example, the cost of labour engaged in a service department can be charged
wholly and directly but the canteen expenses of the factory cannot be charged directly
and wholly. Its proportionate share will have to be found out. Charging of costs in
the former case will be termed as “allocation of costs” whereas in the latter, it will be
termed as “apportionment of costs”.
(ii)
Cost Reduction and Cost Control
Cost reduction and cost control are two different concepts. Cost control is achieving
the cost target as its objective whereas cost reduction is direct to explore the
possibilities of improving the targets. Thus, cost control ends when targets are
achieved whereas cost reduction has no visible end. It is a continuous process. The
difference between the two can be summarized as follows:
Questions & Answers November2022
Page 45 of 73
i.
ii.
iii.
iv.
v.
b)
Cost control aims at maintaining the costs in accordance with established
standards whereas cost reduction is concerned with reducing costs. It changes
all standards and endeavors to improve them continuously.
Cost control seeks to attain the lowest possible cost under existing conditions
whereas cost reduction does not recognize any condition as permanent since a
change will result in lowering the cost.
In case of cost control, emphasis is on past and present. In case of cost
reduction, emphasis is on the present and future.
Cost control is a preventive function whereas cost reduction is a correlative
function. It operates even when as efficient cot control system exists.
Cost control focuses on decreasing the total cost of production while cost
reduction focuses on decreasing per unit cost of a product.
Cost Accounting cycle is a process performed during the accounting period in recording
data, classifying, determining total cost, determining product cost, determining the selling
price, controlling cost and decision making.
Cost Accounting cycle include.
(a)
Recording cost data: At the first step of cost accounting it ascertains and records the
element of cost for determining of the cost production.
(b) Classification cost data: At the Second step according to function, nature, and
behavior cost accounting classifies the cost.
(c)
(d)
(e)
(f)
Determining total cost: In this step under cost accounting cost of goods sold of a
product is calculated. Cost of goods sold means the sum of all items of expenditure
incurred in production for the goods which are sold.
Unit cost: At the forth step Unit cost is obtained dividing the cost of goods sold
divided by a total number of unit sold.
Selling price: Selling price is obtained by adding a profit margin with the cost of
sales.
Cost Control and decision making: At the last step of cost accounting by using
standard costing and budget and budgetary control system cost accounting control
cost and make a decision.
c)
RRODUCT A
PRODUCT B
PRODUCT C
TOTAL
DETAILS
Period I
Period II
Period I
Period II
Period I
Period II
Period I
Period II
10,000
20,000
10,000
13,000
10,000
5,000
30,000
38,000
B
Selling price P.U in
TZS.
Selling price per unit
18,000
18,000
25,000
25,000
48,000
48,000
-
-
C
Sales Value in (TZS.)
180m
360m
250m
325m
480m
240m
910m
925m
D
Variable costs
100m
200m
150m
195m
250m
125m
500m
520m
F
Contribution (TZS.)
80m
160m
100m
130m
230m
115m
410m
405m
G
Fixed overheads (TZS.)
-
-
-
-
-
-
135m
135m
H
Net profit (TZS.)
-
-
-
-
-
-
275m
270m
A
P/V Ratio
44.4
Questions & Answers November2022
40
47.9
Page 46 of 73
Comments: Sales have increased by 8,000 units but the sales value has increased by
TZS.15,000. Marginal costs have increased by TZS.20,000 to meet cost of increased units of
production, resulting in the fall of profit by TZS.5,000
Product C which yield the highest percentage of contribution to sales in the most profitable line
Product A comes next and product B is the least profitable of the three.
The unsatisfactory position in period II is because of unfavorable sales mix as the production
of most profitable line C has been cut down and the less profitable product A and B has been
pushed up.
_____________ ▲ ____________
Questions & Answers November2022
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