Question
QUESTION THREE Mali Yote Limited is a company engaged in the manufacture of specialist marine engines. It operates a job costing accounting system which is
QUESTION THREE
Mali Yote Limited is a company engaged in the manufacture of specialist marine engines. It
operates a job costing accounting system which is not integrated with financial accounts.
At the beginning of the month of May 2019, the operating balances in the cost ledger were as
follows:
Sh. '000'
Stores ledger control account85,000
Work in progress control account 167,000
Finished goods control account 49,000
Cost ledger control account 302,000
During the month, the following transactions took place.
Materials:
Purchases 42,700
Issues to:
Production 63,400
General maintenance 1,400
Assembling of manufacturing equipment 7,600
Factory wages: Total wages paid124,000
Of the total wages paid. Shs.12,500,000 was incurred in the assembly of manufacturing
equipment. Shs.35,700,000 was indirect wages and the balance was direct wages.
Other production overhead costs incurred amounted to Shs.152,000,000. Shs.30,000,000 of
which was absorbed by the manufacturing equipment under assembly while Shs.7,500,000 was
under absorbed overhead costs written off.
One of the engines manufactured by the company is produced under license. During the month
of May 2002. Shs.2,100,000 was paid as royalty for that particular engine.
Selling overheads and distribution overhead costs were as follows:
Sh. '000'
Selling overheads 22,000
Distribution overheads 410,000
The company's gross profit margin is 25% on factory cost.
At the end of May 2002, the stock of work in progress had increased by Shs.12, 000,000. The
Manufacturing equipment under assembly was completed within the month and transferred out
of the cost ledger at the end of the month.
Required: Prepare,
(i) Cost ledger control account (8 marks)
(ii) Stores ledger control account (3 marks)
(iii) Work in progress control account (3 marks)
(iv) Finished goods control account (3 marks)
(v) Costing profit and loss account (3 marks
QUESTION FOUR
Two Left Feet Ltd manufactures a single product, the Claud. The following figures relate to the
Claud for a one-year period,
Activity level50%100%
Sales and productions (units)400800
ShsShs
Sales8,00016,000
Production costs: Variable3,2006,400
Fixed 1,600 1,600
Sales and distribution costs Variable 1,6003,200
Fixed2,4002,400
The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout
The year, and actual fixed costs are the same as budgeted. There were no stocks of Clauds at the
Beginning of the year. In the first quarter, 220 units were produced and 160 units sold.
Now:
(a) Calculate the fixed production costs absorbed by Clauds in the first quarter if absorption
costing is used,
(b) Calculate the profit using absorption costing,
(c) Calculate the profit using marginal costing,
(d) A reconciling of profits andExplain why there is a difference between the answers to (c) and (d).
QUESTION FIVE
Sasumwa Construction limited has been awarded a contract to build a house. This is a contract
No 45 for the company and the contract price is Shs.2.65 million. At the end of the company's
financial year, the contract was 85% complete and hence regarded as being near completion. You
are also provided with the following information about the contract:
Particulars Shs.
Materials purchased and delivered 580,000
Materials issued from store 60,000
Materials returned to stores 9,000
Site expenses 300,000
Site wages 200,000
Plant sent to site 100,000
Architect's fees 30,000
Plant returned from site 10,000
Subcontractor's fees 105,000
Head Office overheads absorbed 60,000
Valuation at the year ending disclosed the following: Shs
Materials: 19,500
Plant on site 50,000
Work done but not yet certified 60,000
Additional information
a) The portion of the work which was completed during the year and certified by the architect
was assessed as representing 75% of the whole contract price. The contractee made
payments to this extent less 10% retention money.
b) The management of the company decided for the purpose of preparing the company's
annual accounts to make a provision of a third of the notional profit against the possibility
of defects and other contingencies arising later in respect of the work already certified
for payment.
Required:
- Prepare the contract account
- Compute the amount of profit or loss to be taken to the main profit and loss account of
the company.
- Compute the value of work in progress.
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