Question 2

(a) (i) Distinguish between period costs and product costs.

(ii) Explain the accounting treatment of period and product costs.

(2 marks)

(b) Generations Construction Ltd (GCL) was awarded a contract to construct health centers in a new district in Uganda. Provided is the company's trial balance extract for the year ended 30 April, 2018.

Amount received Capital

Buildings Materials Creditors

Bank balance Wages

Expenses

Plant and machinery

Dr Shs '000'

1,900,000 2,000,000

Cr Shs '000' 2,500,000 6,000,000

320,000 720,000

1,800,000 400,000 200,000

Additional information:

1. Work on the contract commenced on 1 May 2017. 2. Materials:

Inventory 1 May, 2017 Destroyed by fire Inventory 30 April, 2018

3. The contract price was Shs 5,000,000,000.

4. Work certified was 80% of the total contract price and uncertified work was estimated at Shs 350,000,000 on 30 April, 2018.

5. Expenses are charged to the contract at 15% of the wages. 6. Plant and machinery are depreciated at 5% per annum.

(2 marks)

Required:

(i) Prepare contract account for the year ended 30 April, 2018.

(ii) Determine the profit or loss on the contract.

(3 marks)

(c) New Dawn Ltd produces a daily newspaper which is currently selling at Shs 1,500 per copy.

Their cost structure includes the following:

Direct materials: 60% of the total cost. Direct labour: 30% of the total cost. Overheads: 10% of the total cost.

Recently the prices for materials and labour have increased by 20% and 25% respectively. Consequently the existing profit is anticipated to fall by 20% if the selling price remains the same.

Required:

(i)Prepare statement showing the anticipated increase in the cost per copy.

(ii) Determine the cost and the profit per copy.

Question 3

1. (a)Explain any three ways in which employees can commit payroll fraud and
2. how to overcome it.
3. (6 marks)
4. (b)Spark Wiring Company Ltd (SWCL) deals in repairs of electric equipment in customers' homes. The following information relates the period ended 31 December, 2017:
5. Sales recorded were Shs 18,500,000,000 and the PV ratio was 30%. Due to labour turnover, 900 productive hours were lost.
6. The actual labour hours worked were 8,000 which include 600 hours attributed to training new staff.

The costs incurred due to labour turnover were:

Recruitment

Training

Selection

Settlement of new staff

Shs '000' 12,040 7,800 3,600 60,000

Furthermore, the company's records revealed the following:

Standard time Time taken Hourly rate

Required:

15 hours

9 hours Shs 25,000

Question 4

(a)

(i) Identify any three features of process costing.

(1 mark)

(ii)Define the term 'process costing'.

(3 marks)

1. (b)Explain any two differences between job costing and process costing.
2. (4 marks)
3. (c)Metal and Shaft Ltd produces oil lubricants which pass through 3 processes to completion. The following information relates to Process 3 for the year ending 31 December, 2017.
4. At the beginning of the period work in progress was 1,000 litres. Values and stage of completion for materials, labour and overheads were as follows:

1. (i)Calculate the profit lost as a result of labour turnover for the year ended 31 December, 2017.
2. (8 marks)
3. (ii)Calculate the total earnings of a worker under the Halsey premium and Rowan plans.
4. (4 marks)
5. (iii)Advise SWCL on the bonus scheme to adopt in order to motivate the workers.

Materials added Labour Overheads

Shs '000' 10,000 15,500 16,500

(i) (ii) (iii)

determine the equivalent units and equivalent cost per litre.

determine the value of opening work in progress. Prepare process account for Process 3, in litres.

Shs '000' % Input materials (Process 3) 12,000 100 Materials added 8,600 50 Labour 6,000 60 Overhead 4,000 30

Output of 6,200 litres were transferred from Process 2 at a value of Shs 46,500,000.

Other costs were as follows:

On 31 December, 2017, there was closing work in progress of 800 litres which were at the following stages of completion.

Input materials 100% Materials added 50% Labour 50% Overheads 60%

Required:

(i)Using first in first out method of stock valuation:

Question 5

1. (a)Explain any two advantages and two disadvantages of budgetary control. (4 marks)
2. (b)Umazo Ltd manufactures two products: Skits and Skets in department A and department B respectively. The following information relates to a
3. period of three months ending 31 March, 2018.
4. Standard materials and labour costs per unit: Shs
5. Material X per kg 200 Material Y per kg 250 Direct labour per hour 400
6. Variable overheads are 20% of the labour costs incurred and they are recovered one month after they have been incurred.
7. The standard material and labour usage per unit for each product is as follows:
8. Material X Material Y Direct labour
9. Kg Kg Hours

Skits 1088

Skets 12 10 10

Fixed costs are budgeted at Shs 3,000,000 for every quarter of the year and these will be recovered on a monthly basis.

Umazo Ltd receives rental income from its other investments of Shs 1,500,000 plus 5% on each and every month's pay. The company incurs Shs 400,000 as a monthly retainer fee for the management of these rental investments.

Sales of Skets are 60% cash and 40% credit. Credit sales are realised one month after the month of sale.

Sales of Skits are 80% cash and 20% credit. Credit sales are realised after two months from the month of sale. There is a 3% discount if customers pay in the stipulated period.

Budgeted monthly sales in line with budgeted production are as below:

Skits Skets

Quantity Units 40,000 35,000

Selling price Shs 10,000 15,500

Required:

Prepare cash budget for Umazo Ltd for the three Months ending 31 March, 2018.

(16 marks) (Total 20 marks)

Question 6

1. (a)With examples explain any three methods of classifying overheads.
2. (3 marks)
3. (b)Alivia Designers produces men's suits. The following is the monthly production and total costs incurred for the first six months of the year ended 30 June, 2017.

Month No of suits

January February March April May June

Required:

34 24 36 49 38 22 

Cost Shs 6,673,921 6,238,667 6,760,972 7,326,802 6,848,023 6,151,616

Using regression analysis, predict the production cost for the month of July, 2017 when the company had planned to produce 50 suits.

(8 marks)

(c) T .K. Engineering Company has four departments A, B, C and D. The following are budgeted costs for the month of April, 2018:

Rent

Depreciation of plant Insurance of plant Lighting

Supervision

Staff welfare

Shs '000' 2,980 1,500 800 630 2,400 1,200

The following data relates to the four departments: ABCD

Area (m2)

Book value of plant (Shs) Number of employees

Required:

7500 4500 2500 1875 4,500,000 3,750,000 2,500,000 4,200,000

Using appropriate bases apportion the overhead costs to the four departments. (9 marks)