Question 1 1) With the aid of diagrams, explain the following types of Cost a. Fixed cost b. Stepped fixed cost c. Variable cost d. Semi-variable cost II) Adobe Ltd recorded the following data for a semi-variable cost for the second half of 2019: Activity level Cost incurred Month (units) (GHC) July 10,500 92,000 August 15,000 110,000 September 12,000 98,000 October 13,000 102,000 November 14,500 108,000 December 11,000 94,000 Required a. Using the high and low method, Calculate the variable cost per unit and the total fixed cost. b. Predict the cost of producing 16,500 units Kamara Limited operates five departments of which Department 1, 2 & 3 are production departments and Departments 4 and 5 being stores and maintenance departments respectively. The actual cost incurred for the year ended 31st December 2019 were: Rent 90,000 Insurance of Building 75,000 Power 70,000 Supervision 30,000 Machine Depreciation 44,000 Canteen services 54,000 Light and Heat 50,000 DEPARTMENTS Machining Assembling Finishing Stores 40,000 26,000 43,000 7,000 25,000 50,000 71,000 45,000 Indirect Materials Indirect Wages Maintenance 20,000 30,000 The following information is also available for the 5 departments. DEPARTMENTS Machining Assembling Finishing Stores Maintenance Area Occupied sqft) 600 300 150 60 90 Cost of machines 120000 80000 40000 10000 Horse Power 500 350 1500 400 250 No. of Mat Requisition 125 75 50 No. of employees 40 50 10 20 30 Maintenance Hours 300 500 200 . 30000 2000 Direct Labour Hours Machine Working Hours 8000 40000 4000 30000 1000 20000 10000 The company produces two products X and Y and the number of hours spent on the production of each unit of X and Y are: Y Machining: Direct Labour Hours 95 65 Machine Hours Assembling: Direct Labour Hours Machine Hours Finishing: Direct Labour Hours 70 Machine Hours 275 250 160 225 140 89 SO 60 120 You are required to: a. Prepare the overheads analysis sheet showing the apportionment of overheads to the department and the re-distribution of the service departments overhead to the production departments. b. Calculate for each production department the most appropriate overhead absorption rate given reasons for your choices c. Calculate the overheads chargeable to each unit of the products X and Y produced. Question 3 a) Standard costing is an important management accounting technique which can benefit all forms of business enterprises if fully understand and operated. Required: i. Discuss five (5) benefits of using standard costing. ii. Distinguish between a favourable variance and adverse variance as used in standard costing iii. Briefly explain with examples the types of standards used in standard costing b) A company produces and sells one product only, Sobolo, the standard cost for one unit being as follows: GHC Direct material A - 10 kilograms at GH20 per kg 200 Direct material B - 5 litres at GH6 per litre 30 Direct wages - 5 hours at GH6 per hour 30 Fixed production overhead 50 Total standard cost 310 The fixed overhead included in the standard cost is based on an expected monthly output of 900 units. Fixed production overhead is absorbed on the basis of direct labour hours. During March the actual results were as follows Production 800 units Material A 7.800 kg used, costing GH159,900 Material B 4,300 litres used, costing GH23,650 Direct wages 4,200 hours worked for GH24,150 Fixed production overhead GH47,000 Required (a) Calculate Material total, material price and usage variances for each material. (b) Calculate Labour total, labour rate and efficiency variances. (e) Calculate Fixed production overhead expenditure and volume variances. Question 4 Kuapa Ltd manufactures and sells a single product which has the following cost and selling price structure: GH per unit GHe per unit Selling price 150 Direct material 40 Direct Labour 25 Variable Overhead Fixed Overhead 20 35 120 30 Profit per unit The fixed overhead absorption rate is based on the normal capacity of 2,500 units per month. Assume that the same amount is spent each month on fixed overheads. Budgeted sales for the next month are 3,000 units. You are required to calculate a) The breakeven point in sales units and value b) The margin of safety for the next month in units and percentage c) The contribution to sales ratio d) The budgeted profit for the next month e) The sales required to achieve a targeted profit of 150,000 f) Draw a breakeven chart to showing the revenue line, variable and fixed cost line, breakeven point in value and in units, margin of safety, profit and loss. Question 5 Facemask Ltd makes two products, N95 and K15. The following data are relevant for the year ending 31" December 2020: Material prices Material A GHS2.5 per unit Material BGHS3.5 per unit Direct labour is paid GHS9.50 per hour. Production overhead cost is estimated to be GHS 150,000. Production overhead cost is absorbed into produet costs using a direct labour hour absorption rate. Selling and administration overhead is budgeted to be GHS 80,000. Each unit of finished product requires: N95 KIS Material A 11 units 12 units Material B 9 units 5 units Direct labour 8 hours 9 hours The sales director has forecast sales of N95 and K15 will be 6,500 and 2,000 units respectively during the year 2020. The selling prices will be as follows: N95 GHS215 per unit K15 GHS140 per unit She estimates that there will be opening inventory of 200 units of N95 and 300 units of K15. At the end of the year 2020, the company intends holding inventory of 250 units and 500 units of N95 and K15 respectively, The Production Director estimates that the opening inventories of raw materials will be 2,800 units of material A and 4.050 units of material B. At the end of the year 2020, the inventories of these raw materials are to be: A 5,000 units B 3,000 units Statement of financial position extracts for year ended 31 December 2019 are as follows: Inventory of Raw materials GHS 30,000 Inventory of Finished goods GHS 45,000 The Finance Director advises that the rate of tax to be paid on profits during the year 2020 is likely to be 25%. It is estimated that the value of Closing inventory at the end of the period will be GHS90,000 for raw materials and 62,000 for finished goods Required: 2. Prepare all functional budgets and budgeted statement of profit or loss for the year ending 31" December 2020 b. The Managing Director of Facemask Ltd is of the view that the budget preparation and presentation process is a waste of resources considering the time and money invested into it. He thinks the cost far outweighs the benefits and the company could still operate effectively without any budget. Do you agree with him? Explain why? QUESTION Kaseh Ltd produces and sells one product with the brand name Kontoh. The standard cost for one unit being as follows: GHS Direct material A - 11 kilograms at GHS20 per kg Direct material B - 5.5 litres at GHS10 per litre Direct wages 5 hours at GHS7 per hour Variable production overhead Total standard cost 220 55 35 50 360 The variable production Overheads is incurred in direct proportion to the direct labour hours worked. The budgeted sales volume for the month of May was 850 units at Standard price of GHS380 Actual results for the month of May are as follows: Production and Sales 900 units Material A 9,000 kg used, costing GHS 189.000 Material B 4.500 litres used, costing GHS 40,500 Direct wages 5,400 hours worked for GHS 35,100 Variable production overhead GHS 48,600 Sales proceeds GHS328,500 The Managing Director of Kasch Ltd does not understand why there are differences between the standard and the actual costs and has tasked you as a Management consultant to undertake a variance analysis to investigate the differences recorded for the year under review. Note: Computations are required to support your analysis Required: Write a report to the Managing Director, highlighting all the possible variances in Material, Labour, Variable Overheads and Sales and their possible causes. QUESTION 7 The information below was extracted from the books of Kakabo Ltd for the year ended December 31, 2019 Kakabo Ltd. Income Statement for the Year Ended December 31, 2019 Agbeli GHS 500,000 Mankani GHS 405,000 Blefo GHS 95,000 Total GHS 1,000,000 Sales Costs of goods sold: Variable costs Fixed costs Total cost of goods sold Gross profit Operating expenses: Variable expenses Fixed expenses Total operating expenses Income (loss) from operations 220,000 120,000 340,000 160.000 200,000 80,000 280,000 125,000 60,000 20,000 80,000 15,000 480,000 220,000 700.000 300,000 95,000 25,000 120,000 40,000 60,000 20,000 80,000 45.000 24,000 7,000 31,000 (16,000) 179,000 52,000 231,000 69,000 Management is contemplating on whether or not to discontinue Blefo. Required: 1. Advise management whether or not to discontinue Blefo and support your answer with calculations depicting the contribution derived from Blefo and the effect of discontinuing Blefo on overall profits of Kakabo Limited. b. Most Management decisions are affected by the nature, purpose and behavior of costs. You have been tasked by the management of battlefield Limited to educate the staff of its Accounts department on the effects of the various classifications of costs on their decisions. Prepare your notes for this presentation. Question 8 I Pare RH makes and sells one product, which has the following standard production cost. GHC 18 Direct Labour Direct Materials Production Overhead 28 3 hours at GH6 per hour 4 kilograms at GH7 per kg Variable Fixed 3 20 69 Standard production cost per unit Normal output is 16,000 units per annum. Variable selling, distribution and administration costs are 20 percent of sales value. Fixed selling, distribution and administration costs are GH180,000 per annum. There are no units in finished goods inventory at 1 October 2017. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is GHe 140. Production and sales budgets are as follows: Six months ending 31 March 2018 8,500 7,000 Six Months Ending 30 September, 2018 7,000 8.000 Production Sales Required: Prepare profit statements for each of the six-monthly periods, using the following methods of costing. (a) Marginal costing (b) Absorption costing Question 9 The following information relates to Kitkat Ltd: Month Wages Materials incurred Purchases Overhead Sales February March April May June July August GH 6,000 8,000 10,000 9.000 12,000 10,000 9,000 GH 20,000 30,000 25,000 35,000 30.000 25.000 25,000 GHe 10,000 12,000 16,000 14.000 18,000 16,000 14,000 GH 30,000 40,000 60,000 50,000 70,000 60,000 50,000 Additional Information a. It is expected that the cash balance on 31st May will be GH22,000, b. The wages may be assumed to be paid within the month they are incurred. c. It is company policy to pay suppliers for materials three months after receipt. d. Credit customers are expected to pay two months after delivery. e. Included in the overhead figure is GH2,000 per month which represents depreciation on two cars and one delivery van. . There is one-month delay in paying the overhead expenses. g 10% of the monthly sales are for cash and 90% are sold on credit. h. A commission of 5% is paid to agents on all the credit sales but this is not paid until the month following the sales to which it relates. This expense is not included in the overhead figure shown. i. It is intended to repay a loan of GH25,000 on 30th June. j. Delivery is expected in July of a new machine costing GH45,000 of which GH15,000 will be paid on delivery and GH15,000 in each of the following two months. k. Assume that overdraft facilities are available if required. Required: Prepare a cash budget for June, July and August Question 10 Hen Limited started to produce a special product which was demanded by Cock Ltd. When production was about 70% complete, Cock Ltd was declared bankrupt and had to liquidate. Production costs incurred to date by Hen Ltd is GH495.000 and progress payments of GHc25,000 had been received from Cock Ltd prior to the liquidation. The sales department has found another company (Chicken Ltd) willing to buy the Product for GH70,000 once it has been completed. To complete the work, the following costs will be incurred. 1. Materials: these have been bought at a cost of GH15,000. They have no other use but a net relisable value of GH6,500. b. Additional labour hours of 4000hrs will be required to complete the product at a rate of GH4 per hour. Labour is in short supply, and if the production is not continued, the work force would be switched to a new job, which would earn revenue of GH45,000. Total variable cost of GH18,000 will be incurred on the new job and fixed overhead of GH15,000 will be absorbed. c. Legal fees of GH10,000 will be incurred if the product is to be completed. If the work is not completed, the law firm's contract would be terminated at a cost of GH6,000. d. General overheads of GH8,000 will be absorbed and additional variable overhead cost of GH4,500 would be incurred to complete the production of the specialized product. e. Plant and machinery to be used to complete the production Process has a cost of GH15,000; scrap value of GH11,000. This machine could generate future revenue of GH15,000 if it is used in the company for other purposes. The plant's current market value is GH10,000 Required a. Identify all the costs and revenues that are relevant to the decision to complete and sell and explain why they are relevant to the decision b. Identify all irrelevant costs to the decision and briefly explain why they are irrelevant c. Compute the profit or Loss to be made if the specialized product is completed and sold to Chicken Ltd and indicate whether the offer should be accepted. 1 Question 11 A company manufactures two products, Alata and Samina, using the same equipment and similar processes. An extract of the production data for these products in one period is shown below. Alata Samina Quantity produced (units) 5,000 7,000 Direct labour hours per unit 2 Machine hours per unit 3 1 Set-ups in the period Orders handled in the period 15 60 Overhead costs GHC Relating to machine activity 220,000 Relating to production run set-ups 20,000 Relating to handling of orders 45.000 285.000 10 40 Required Calculate the production overheads to be absorbed by one unit of each of the products using the following costing methods. (a) A traditional costing approach using a direct labour hour rate to absorb overheads (b) An activity based costing approach, using suitable cost drivers to trace overheads to products Question 12 Kakum Ltd, makes and sells one product, which has the following standard production cost. GH 18 Direct Labour Direct Materials Production Overhead 21 3 hours at GH6 per hour 3 kilograms at GH7 per kg Variable Fixed 3 18 Standard production cost per unit 60 Normal output is 17,000 units per annum. Variable selling, distribution and administration costs are 25% of sales value. Fixed selling, distribution and administration costs are GH200,000 per annum. There are no units in finished goods inventory at 31 Dec. 2018. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is GH160. Production and sales budgets are as follows: Jan - June 2019 July - Dec 2019 Production 8,900 8,700 Sales 8,000 9,000 Required: Prepare profit statements for each of the six-monthly periods, using the following methods of costing. (c) Marginal costing (d) Absorption costing Question 13 KOKO LTD operates five departments of which Department 1.2 & 3 are production departments and Departments 4 and 5 being stores and maintenance departments respectively. The actual cost incurred for the year ended 31st December 2016 were: Rent 820,000 Insurance of Building 340,000 Power 540,000 Supervision 210,000 Machine Depreciation 440,000 Light and Heat 500.000 DEPARTMENTS Machining Assembling Finishing Stores Maintenance Indirect Materials 200,000 150,000 240,000 60,000 100,000 Indirect Wages 350,000 500,000 620,000 160,000 200,000 60 The following information is also available for the departments. DEPARTMENTS Machining Assembling Finishing Stores Maintenance Area Occupied sqft) 600 300 150 90 Cost of machines 120000 80000 40000 10000 Horse Power 500 350 1500 400 250 No. of Mat Requisition SS 80 25 Maintenance Hours 400 560 Direct Labour Hours 75000 300.000 48,000 18,000 9,000 Machine Working Hours 380,000 101.000 280,000 15,000 40 The company produces two products KB and GH, and the number of hours spent on the production of each unit of KB and GH are: KB GH Machining: Direct Labour Hours 105 50 Machine Hours 200 180 Assembling: Direct Labour Hours 200 155 Machine Hours S5 40 Finishing: Direct Labour Hours 60 80 Machine Hours 205 156 You are required to: d. Prepare the overheads analysis sheet showing the apportionment of overheads to the department and the re-distribution of the service departments overhead to the production departments e. Calculate for each production department the most appropriate overhead absorption rate given reasons for your choices. f. Calculate the overheads chargeable to each unit of the products KB and GH produced. cost Question 14 O'Reilly has been approached by a customer who would like a special job to be done for him. and who is willing to pay GH22,000 for it. The job would require the following materials. Material Total Units Units Book value Relisable Replacement required already in of units in value inventory inventory GH/unit GH/unit GHc/unit 1,000 6.0 1.000 2.5 5.0 1.000 700 3 2.5 4.0 D 200 200 9.0 A B 0 600 2 4 6.0 Material B is used regularly by O'Reilly and if units of B are required for this job, they would need to be replaced to meet other production demands Materials and D are in inventory as a result of previous over-buying, and they have a restricted use. No other use could be found for material C, but the units of material D could be used in another job as substitute for 300 units of material E, which currently costs GHper unit (of which the company has no units in inventory at the moment). Required Calculate the relevant costs of material for deciding whether or not to accept the contract. Question 15 14 Page Johnson Limited started to produce a special product which was demanded by Bark Lid. When production was about 90% complete, JCM Lid was declared bankrupt and had to liquidate. Production costs incurred to date by Johnson Ltd is GH