Accounting for Costs
Thursday 9 December 2010
Time allowed: 2 hours
This paper is divided into two sections:
Section A – ALL 20 questions are compulsory and MUST
be attempted
Section B – ALL FOUR questions are compulsory and MUST
be attempted
Do NOT open this paper until instructed by the supervisor.
This question paper must not be removed from the examination hall.
The Association of Chartered Certified Accountants
Paper T4
Certified Accounting Technician Examination
Intermediate Level
Section A – ALL 20 questions are compulsory and MUST be attempted
Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to
each multiple choice question.
Each question within this section is worth 2 marks.
1
An estimate has been made of the effect that a change in selling price would have on the profit of a product.
In which area will this information be especially useful?
A
B
C
D
2
Cost reduction
Decision-making
Feedback control
Responsibility accounting
Which of the following are features of useful management information?
(1) Communicated to the right person
(2) Provided whatever the cost
(3) Sufficiently accurate for its cost
A
B
C
D
3
4
(1) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
Which two of the following activities are most likely to be the responsibility of an accounting technician?
(1)
(2)
(3)
(4)
Negotiating prices with suppliers
Producing product profit statements
Setting rates of pay
Valuing inventory
A
B
C
D
(1)
(1)
(2)
(3)
and
and
and
and
(2)
(3)
(4)
(4)
Which of the following are common to both cost accounting and financial accounting?
(1)
(2)
(3)
(4)
Control accounts
Cost classification
Marginal costing
Periodic stocktaking
A
B
C
D
(1) and
(1), (2)
(1), (3)
(2) and
(2) only
and (4)
and (4)
(3) only
2
5
Which of the following cost classifications can be applied to a percentage commission paid to salespersons on
the basis of total sales values?
(1) Indirect
(2) Prime
(3) Variable
A
B
C
D
6
(1) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
Material RMZ is used in the manufacture of Product P. The table below shows the total cost of the material at different
activity levels:
Units of product P
10,000
11,000
12,000
13,000
14,000
Total cost of RMZ ($000)
120·0
132·0
144·0
155·0
166·0
What could explain the above cost behaviour pattern?
A
B
C
D
7
Increasing material wastage as production activity rises
Steady improvements in the efficiency of material usage
A single volume discount applying to additional quantities purchased when production exceeds 12,000 units
A single volume discount applying to all quantities purchased once a threshold level is reached
One of the costs incurred by a company is a fixed cost.
If activity is reduced by 10%, what is the effect on the fixed cost per unit of output?
A
B
C
D
8
Increase by 10%
Increase by less than 10%
Increase by more than 10%
No change
The inventory record for Material X for a period is:
Day
1
4
6
10
14
18
Description
Balance
Receipt
Issue
Issue
Receipt
Issue
Units
200
300
150
200
300
150
Unit costs
$5·00
$5·10
$5·12
Raw material cost is charged to the work-in-progress account after each issue occurs.
How many different unit costs would be used, relating to the issues of Material X in the period, depending upon
whether the FIFO or LIFO pricing method is used?
A
B
C
D
Using FIFO
2
2
3
3
Using LIFO
2
3
2
3
3
[P.T.O.
9
In an interlocking accounting system, what would be the double-entry in the cost accounts for the issue from
inventory of indirect materials for use in a factory?
A
B
C
D
Debit
Production overhead
Raw material inventory
Raw material inventory
Work-in-progress
Credit
Raw material inventory
Bank
Accounts payable
Raw material inventory
10 25,500 kilograms (kg) of a product were manufactured in a period. There is a normal loss of 25% of the weight of
material input. There was an abnormal gain of 10% of the material input in the period.
How many kg of material were input in the period?
A
B
C
D
29,325
30,000
34,000
34,425
11 An accounting technician carries out the following calculation:
Re-order level + order quantity – minimum usage in minimum lead time
What is being calculated?
A
B
C
D
Maximum inventory control level
Minimum inventory control level
Minimum inventory level
Safety level of inventory
12 The production wages in a company for a period include overtime premium paid to direct operatives. The company’s
policy is to treat overtime premium as a direct cost.
What are the correct bookkeeping entries to account for the overtime premium?
A
B
C
D
Debit
Production overhead
Production overhead
Work-in-progress
Work-in-progress
Credit
Wages
Work in progress
Production overhead
Wages
13 The standard time for the production of one unit of Product X is 15 minutes. 2,600 units of the product were
manufactured. This was 200 units more than budget. 630 hours were worked.
What was the efficiency ratio?
A
B
C
D
96·9%
103·2%
105·0%
108·3%
4
14 Machine parts are assembled in a factory. One of the components used to assemble machine part MP12 is
component C26.
Which of the following could be an example of a cost centre in the factory?
A
B
C
D
A unit of component C26
A unit of machine part MP12
The assembly department
The cost per unit of machine part MP12
15 Which of the following are affected by the separation of the losses in a process into normal and abnormal?
(1) The cost per unit of production
(2) The total cost of resource inputs to the process
(3) The valuation of completed output
A
B
C
D
(1) and
(1) and
(2) and
(1), (2)
(2) only
(3) only
(3) only
and (3)
16 A company manufactures a single product which it sells for $36 per unit. Fixed costs total $176,000 per period and
the contribution to sales ratio is 40%.
How many units must be sold each period to break even?
A
B
C
D
4,889
8,148
12,222
70,400
17 A bank account pays a nominal 4·0% per annum with interest payable every six months.
What is the effective annual rate of interest?
A
B
C
D
4·04%
4·16%
4·33%
8·16%
18 A proposed capital investment of $400,000 is estimated to lead to an increase in sales of $300,000 per annum and
variable costs of $100,000 per annum for five years. The investment sum would be depreciated using the straightline method over five years. A $30,000 share of general fixed overheads would be charged to the project in each of
the five years.
What operational annual net cash inflow should be included in the capital investment appraisal?
A
B
C
D
$90,000
$120,000
$170,000
$200,000
5
[P.T.O.
19 What is the internal rate of return of an investment project?
A
B
C
D
The
The
The
The
difference between the return on investment and the cost of capital
discount rate that results in a net present value of zero
net present value when discounted at the cost of capital
return on investment required by the management of a business
20 The chart demonstrates the net present values of two different investment projects over a range of discount rates:
80
NPV
($000) 60
Project 1
40
Project 2
20
0
5
10
15
20
Discount rate (%)
(20)
(40)
Are the following statements about the projects correct?
(1) The internal rate of return of Project 1 is higher than that of Project 2
(2) Project 1 should be accepted if the cost of capital is greater than 13%
A
B
C
D
Statement (1)
Correct
Correct
Not correct
Not correct
Statement (2)
Correct
Not correct
Correct
Not correct
(40 marks)
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Section B – ALL FOUR questions are compulsory and MUST be attempted
1
A company has two operations:
(i)
The printing of leaflets to customer specification in batches of varying size;
(ii) The manufacture of reams of paper in a continuous process.
(a) The company has been asked to quote for the printing of different batch sizes of a leaflet. The following cost
estimates have been made for a batch of 10,000 of the required leaflets:
Preparation costs (irrespective of batch size):
Artwork
Machine set-up
$560
$320
Batch manufacturing costs (proportionately variable with batch size):
Materials
Labour
Other variable costs
General fixed overheads
$690
$180 (12 hours at $15 per hour)
$60
$25 per labour hour
Required:
For batches of 5,000 leaflets and 8,000 leaflets respectively, calculate the total cost:
(i)
of each batch;
(9 marks)
(ii) per leaflet.
(2 marks)
(b) In the manufacture of paper the costs incurred in the process in a period were:
Direct materials
Conversion costs
$77,840
$28,350
There was no work-in-progress at the beginning of the period. 24,600 units were completed during the period
and a further 3,200 units remained in the process at the end of the period, complete for materials but only 75%
complete for conversion costs.
Required:
Calculate the production costs per unit in the period.
(7 marks)
(18 marks)
7
[P.T.O.
2
There are two production cost centres (Assembly and Finishing) and three service cost centres in a factory. Production
overheads are absorbed, using predetermined rates, on the following bases:
Assembly – direct labour hours
Finishing – machine hours
In period six the actual overheads incurred in the two production cost centres, including the reapportionment of the
overheads of the three service cost centres, and the actual activity are:
Overheads
Activity
Assembly
$62,130
8,760 direct labour hours
Finishing
$26,860
1,690 machine hours
The budgets for period six are:
Overheads
Activity
Assembly
$61,320
8,400 direct labour hours
Finishing
$27,280
1,760 machine hours
Required:
Calculate, for each production cost centre for the period, the:
(a) overhead absorption rate;
(3 marks)
(b) overhead absorbed;
(4 marks)
(c) overhead over/under absorption.
(6 marks)
(13 marks)
8
3
A company has been asked to carry out a special order. Completion of the order would require:
1.
Raw materials:
180 kg of material M6* from inventory, bought at $16·40 per kg
400 kg of material M2 to be purchased at $14·30 per kg
$
2,952
5,720
––––––
8,672
––––––
* Material M6 is used on a regular basis by the company. The current replacement price is $16·90 per kg.
2.
430 direct labour hours. The direct operatives, paid at $11 per hour, would have to be transferred from working
on another project which would have generated a contribution of $1,960.
3.
Incremental overheads of $2·50 per direct labour hour.
General fixed overheads are absorbed at a rate of $14 per direct labour hour.
The company must make a decision on whether to accept the special order.
Required:
(a) Calculate the relevant cost of the special order for the purpose of making the decision.
(10 marks)
(b) Define the following terms:
(i)
Sunk costs;
(2 marks)
(ii) Avoidable costs.
(2 marks)
(14 marks)
9
[P.T.O.
4
A company manufactures and sells a single product. Budgeted costs for a period are:
Direct materials
Direct labour
Variable production overhead
Variable administration overhead
Fixed production overhead
Fixed administration overhead
$ per unit
5·60
4·20
0·70
0·50
$ for the period
78,000
42,000
If absorption costing is used, the predetermined fixed production overhead absorption rate will be $6·50 per unit
based on budgeted production of 12,000 units.
1,400 units of the product were in finished goods inventory at the beginning of the period valued at the above
budgeted costs for the period. During the period 11,800 units of the product were manufactured. 12,300 units were
sold at an average price of $24 per unit. Actual costs in the period were as budgeted.
Required:
(a) Using marginal costing, prepare a profit statement to show the actual results for the period.
(9 marks)
(b) Calculate, and explain, the difference in profit for the period if absorption costing is used instead in all periods
(show workings clearly).
Note: A profit statement using absorption costing is NOT required.
(6 marks)
(15 marks)
End of Question Paper
10