Question
Question 2 Painters World Limited (PWL) is the distributor of paint, for Kampala Paints Limited, in Western Uganda. Over the years, first in first out
Question 2
Painters World Limited (PWL) is the distributor of paint, for Kampala Paints Limited, in Western Uganda. Over the years, first in first out (FIFO) method has been used to value all inventory items, but recently, PWL's management resolved to change to weighted average cost (WAC) method. PWL has a procurement manual that guides its procurement process, which requires all purchases to be initiated by the user departments and completed upon payment of suppliers. The Stores manager has provided the 2021: April Purchases following information as at 31 January Sales (tins) Quantity(tins) 1 600 1 3 350 5 160 6 11 80 14 20 210 25 28 29 120 30 Rate per tin (Shs) 180,000 185,000 190,000 185,000 182,000 184,000 of 20 litres each. 160 340 240 410 110 75 determine the value of closing PWL sells paint in standard tins
Required (a) Using the weighted average cost method stock of paint as at 31 January 2021. (12 marks)
(b) Explain any five documents that are used at the different stages of the purchasing process. (5 marks)
(c) Explain the accounting treatment for: (i) idle time (ii) idle capacity (iii) overtime
Question 3 Premium Sugar Uganda Limited (PSUL) deals in production of sugar for local market and export to neighboring countries. PSUL operates an interlocking accounting system. PSUL prepares quarterly management accounts which are used for making internal decisions. The quarterly accounts for the period ended 31 December 2020 reported a costing profit of Shs 792 million and a financial profit of Shs 990 million. The senior management members were confused by the differing profit levels reported for the same period, which made the chief executive officer (CEO) to task the chief finance officer (CFO) to provide a report reconciling the two profit figures. Below is the extract of the statement of profit or loss account from the financial accounting system for the period ended 31 December 2020: Revenue Direct costs Gross profit Other incomes: Interest received on fixed deposits Dividends received Discounts received Gross income Expenses: Administration cost Selling and distribution cost Finance cost Profit for the period Additional information: Shs '000' 16,400,000 (13,120,000) 3,280,000 27,200 8,600 11,210 3,327,010 (1,402,206) (817,950) (116,854) 990,000 (i) The opening and closing inventory balances reported by the cost accounting system were Shs 870 million and Shs 760 million respectively. (ii) Included in direct costs are opening and closing inventory balances worth Shs 860 million and Shs 754 million measured according to IAS 2 Inventory. (iii) Administration costs were absorbed at 10% of the total revenue while selling and distribution costs were absorbed at 60% of the budgeted administration costs. (iv) The production overheads were absorbed at 15% of the total revenue while the actual production overheads incurred were Shs 2.6 billion and they are reported in the direct costs above.
Required: (a) Prepare a statement that reconciles costing profit with financial profit for the period ended 31 December 2020. (11 marks) (b) Explain any four advantages of operating an integrated accounting system to organisations like PSUL. (4 marks) (c) PSUL has a policy of providing meals to all staff members at the staff canteen. The standard cost of a plate of food for each staff comprises of the following costs: Inputs (material) Labour cost Overheads Shs '000' 4,000 80% of input cost 10% of labour cost Heaven Foods Limited (HFL) has offered to supply meals to PSUL at a cost of Shs 7,500 per plate of food.
Required: With relevant calculations, advise PSUL whether it is viable to outsource staff meals.
Question 4 Premium Builders Limited (PBL) specialises in construction of buildings. On 15 November 2020, PBL won a contract from Gulu district local government to construct two classroom blocks at Otuke Primary School at a price of Shs 250 million. The cost data from PBL's accounts as at 31 January 2021 is as follows: Shs '000' Direct material Cement 1,000 bags Sand Timber Nails and other materials Wages paid Accrued wages Contract overheads Hire of specialised equipment Plant installed on site at cost (1 January 2021) Carrying value of plant on site (31 January 2021) Contract supervision costs Value of material on site as at 31 January 2021 Additional information: On 30 January 2021, the value of work certified was same date, there was work worth Shs 20 million completed but pending certification. PBL estimates that the contract is in its maturity stage and has so far received Shs 110 million from Gulu district local government.
Required (a) Prepare for PBL: (i) a contract account as at 31 January, 2021. (ii) statement of financial position extract as at 31 January, 2021. (5 marks) (b) Tugende Transporters Limited (TTL) operates a fleet of buses plying the major routes of Kampala. Due to the stiff competition in the transport sector, TTL has remained loss making since incorporation. Each of TTL's buses makes 4 'full to capacity' round trips a day and the capacity of each bus is 35 passengers. 28,000 24,600 4,200 2,700 41,650 3,500 7,200 8,420 44,700 41,200 1,700 5,200 Shs 130 million and on the (8 marks)
TTL charges Shs 2,000 per passenger and incurs a cost Shs 1,750 per passenger in one trip. TTL also incurs weekly fixed cost of Shs 2.4 million on general repairs and servicing for all the buses.
Required: Determine: (i) the number of trips that TTL should make in order to break even. (3 marks) (ii) TTL's margin of safety in revenue if 14,300 trips will be made. (2 marks) (c) Briefly explain how the absorption costing technique can be used in setting selling prices for goods and services. (2 marks) (Total 20 marks)
Question 5 Comfort Furniture Limited (CFL) is a local firm that specialises in manufacturing of high quality furniture for sale in central region. On 1 March 2021, CFL received an order from Kalungu district education office to supply 2,000 desks at Shs 94,000 per desk. The standard cost of producing a desk is as follows: Material: Timber Vanish Nails Quantity 11,000 pieces 1,200 litres 980 kg Amount Shs '000' 115,500 9,000 4,998 Quantity Unit price (Shs) 6 pieces 10,000 0.5 litres 8,000 0.5 kg 5,000 4 hours 2,500 Amount (Shs) 60,000 4,000 2,500 10,000 Material Timber Vanish Nails Labour Production overheads is 20% of labour cost CFL provides for idle time at a rate of 25% of the budgeted labour hours. CFL normally sells each desk at a standard cost plus 20% markup. The actual costs incurred to produce 2,000 desks were as follows: The total labour hours paid for were 8,250 hours at Shs 2,400 per hour of which only 80% were production hours and the actual production overheads incurred were 25% of the total actual labour cost.
Required: (a) Compute the following variances: (i) Sale price (ii) Material price (iii) Material usage (iv) Labour rate (v) Labour efficiency (vi) Production overheads expenditure (b) Explain to management of CFL any four factors that might have caused the variances in material price and usage above. Question 6 (a) Designers World Limited (DWL) specialises in production of world class garments for sale to all age groups in Uganda. DWL's main product is the "Bitengi" which are popular amongst the youth and the elderly. DWL has 3 production departments namely machining, cutting and finishing and 2 service departments namely quality assurance and marketing. During the year ended 31 December 2020, DWL incurred the following overheads in production and sale of Bitengi throughout the year. Production departments: Machining Cutting Finishing Service departments: Quality assurance Marketing Shs '000' 64,000 40,500 72,000 12,400 16,000 A technical assessment conducted at the year-end revealed that service department overheads were consumed by other departments in the following proportions: Machining Cutting Quality 30 20 Assurance Marketing 20 25 Required: Using simultaneous equations method prepare DWL's secondary overheads analysis sheet for the year ended 31 December 2020. Finishing Quality assurance 40 - 10 Marketing 50 5 - (b) As part of its expansion strategy, DWL resolved to increase its output target of Bitengi to 1,000,000 units per annum. The new budget estimates were effective 1 January 2020 and it was budgeted that each complete unit of Bitengi will require 0.25 hours of which 20% is provided for as idle time. During the year ended 31 December 2020, DWL produced 987,500 units of Bitengi and used a total of 247,250 hours for all units produced. Management is in the process of evaluating its performance for the year and has approached you for help in this assignment.
Required: Determine the following control ratios: (i) activity (ii) capacity (iii) efficiency (c) According to the activity based costing (ABC) technique explain any two overhead costs and show the appropriate activities that drive such costs.
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