Unit: Management accounting
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Login to Access| Order.level............ | Discount (%) |
| 0 – 199 | 1 |
| 200 – 499 | 3 |
| 500 – 699 | 5 |
| 700 units or more | 7 |
| Order cost | Sh.2 per order |
| Annual.demand | 15,000 units |
| Purchase price | Sh.15............... |
| Current EOQ | 200 units |
| Budget | Mixing | Blending | Total |
| Budgeted direct wages (Sh.) | 2,400,000 | 7,000,000 | 9,400,000 |
| Budgeted direct labour hours | 40,000 | 100,000 | 140,000 |
| Budgeted machine hours | 120,000 | 10,000 | 130,000 |
| Budgeted production overheads (Sh.) | 18,000,000 | 10,000,000 | 28,000,000 |
| Direct wages (Sh.) | Labour hours | Machine hours | |
| Mixing | 726,000 | 1,200 | 4,600 |
| Blending | 2,490,000 | 4,150 | 380 |
| 3,216,000 | 5,350 | 4,980 |
| (i) | The cost of the batch of Cyan Paint using a single company-wide overhead absorption rate. |
| (ii) | Departmental overhead absorption rates. |
| (iii) | The cost of the batch of Cyan Paint using management accountant proposal. |
| (iv) | During the month of October 2024, the actual overheads and other relevant data was as follows: |
| (iv) | Actual | Mixing | Blending | Total |
| Actual direct wages (Sh.) | 3,000,000 | 5,950,000 | 8,950,000 | |
| Actual direct labour hours | 50,000 | 85,000 | 135,000 | |
| Actual machine hours | 140,000 | 8,000 | 148,000 | |
| Actual production overheads (Sh.) | 20,000,000 | 9,500,000 | 29,500,000 |
| (iv) | Using the management accounting proposal, calculate the over/under absorption of overhead per department. |
| o | Annual demand | 12,000 units |
| o | Purchase price | Sh.15 per unit |
| o | Fixed cost per order | Sh.200 |
| o | The cost of holding an item “Zedo” in stock for a year is made up of the following percentages: |
| o | Obsolescence | 3% |
| Perpetual audit | 1.5% | |
| Opportunity cost | 2% | |
| Insurance | 1% | |
| Storage | 0.5% |
| Overhead cost | Sh.“million” | Basis of apportionment |
| Depreciation | 660 | Net book value of equipment |
| Indirect labour | 900 | Direct labour hours |
| Repairs and maintenance | 110 | 30% to T, 50% to Q and 20% to M |
| Heating and lightning | 90 | Floor area |
| Consumable supplies | 30 | Direct labour hours |
| General overheads | 20% of direct wages cost of each department |
| Production department | T | Q | M |
| Direct labour hours | 5,000 | 3,000 | 2,000 |
| Direct wages cost (Sh. Million) | 150 | 210 | 100 |
| Number of employees | 25 | 15 | 10 |
| Floor area in square metres (\(M^2\)) | 5,000 | 4,000 | 1,000 |
| Net book value of equipment (Sh. Million) | 80 | 50 | 90 |
| (i) | The primary allocation of production overhead costs to the three departments. |
| (ii) | Calculate the overhead absorption rate (OAR) for each department based on direct labour hours. |
| (iii) | A quotation for a job made as batch BQ23 has the following estimated information: |
| (iii) | Direct material cost | Sh.140,000,000 |
| Direct labour hours | 550 hours in department T | |
| 890 hours in department Q | ||
| 160 hours in department M |
| (iii) | Required: Using the OAR computed in (b) (ii) above, compute the total cost of job batch BQ23. |
| Current system | Proposed system | |
| Purchase cost per unit (Sh.) | 400 | 400 |
| Ordering cost per order (Sh.) | 80,000 | 20,000 |
| Inventory holding cost | 12% | - |
| 1 | Opening work-in-progress 4,000 units Degree of completion and cost: |
| Sh.“000” | |||
| 1 | Materials | 100% | 240,000 |
| Labour | 60% | 144,000 | |
| Overheads | 60% | 72,000 |
| 2 | Units received from process P were 40,000 at a cost of Sh.1,700,550,000 |
| 3 | Additional cost during the period in process Q: Sh.“000” Materials 759,000 Labour 1,355,760 Overheads 640,220 |
| 4 | Closing work-in-progress was 3,000 units with the following degree of completion: Materials 100% Labour.and.overheads.50%. |
| 5 | Units scrapped were 4,000 having the following degree of completion: Materials 100% Labour.and.overheads.80%.. |
| 6 | Normal process loss was 5% of the expected production. |
| 7 | Spoiled units realised Sh.15,000 for each unit. |
| 8 | The company uses FIFO method of valuation for the opening work-in-progress. |
| Cost | Percentage of purchase price per unit per annum (%) |
| Opportunity cost | 5 |
| Obsolescence cost | 4 |
| Storage charges | 3 |
| Handling cost | 2 |
| Insurance cost | ..1.. |
| 15 |
| Product | |||
| HBL1 | HBL2 | HBL3 | |
| Production | 3,300 unit | 7,100 units | 1,650 units |
| Sh. per unit | Sh. per unit | Sh. per unit | |
| Direct material cost | 130 | 150 | 160 |
| Direct labour: | |||
| Mixing cost centre | 75 | 60 | 50 |
| Baking cost centre | 90 | 50 | 180 |
| Mixing machine hours per unit | 6 | 3 | 4 |
| Department | Mixing | Baking | Distribution | Canteen | Total Sh. |
| Allocated overheads (Sh.) | 376,975 | 243,925 | 166,000 | 266,500 | 1,053,400 |
| Rent and rates | 170,000 | ||||
| Depreciation of machine | 300,000 |
| 1 | The budgeted overheads for the year are to be allocated on the following basis: |
| 1 | Department | Mixing | Baking | Distribution | Canteen |
| Net book value of machine (Sh.) | 1,500,000 | 750,000 | 300,000 | 450,000 | |
| Floor space occupied (square metre) | 3,600 | 1,400 | 1,000 | 800 |
| 2 | Secondary reapportionment is allocated using step-wise method on the following basis: |
| 2 | Service department | Mixing | Baking | Distribution | Canteen |
| Distribution | 70% | 30% | - | - | |
| Canteen | 55% | 45% | - | - |
| Particulars | Bella | Chali | Dan |
| Time rate (Sh. per hour) | 300 | 280 | 320 |
| Units produced | 2,500 units | 2,200 units | 2,600 units |
| Time allowed for 100 units | 2 hours 36 minutes | 2 hours 30 minutes | 2 hours 30 minutes |
| Time taken | 55 hours | 58 hours | 54 hours |
| Rejected units | 100 units | 40 units | 200 units |
| Range number | Quantity range Units | Prices per unit of the component |
| I | 1 – 6,000 | 420 |
| II | 6,001 – 10,000 | 380 |
| III | 10,001 – 14,000 | 340 |
| IV | 14,001 – 18,000 | 310 |
| V | 18,001 and above | 260 |
| April | 1 | Opening inventory 4,000 units at Sh100 per unit. |
| 4 | Issued 3,000 units | |
| 5 | Purchased 9,000 units at Sh.120 per unit. | |
| 9 | Issued 3,200 units. | |
| 12 | Returned to stores 2,000 units (from the issue of 4 April 2022). | |
| 15 | Purchased 4,800 units at Sh.130 per unit. | |
| 18 | Returned to supplier 400 units out of the quantity received on 5 April 2022. | |
| 25 | Purchased 2,000 units at Sh.140 each. | |
| 28 | Issued 4,200 units | |
| 29 | Purchased 2,400 units at Sh.150 per unit | |
| 30 | Issued 5,600 units. |
| 30 seater coaches | 50 seater coaches | |
| Number of coaches | 5 | 10 |
| Number of drivers | 5 | 10 |
| Weekly wage cost per driver | Sh.12,000 | Sh.12,500 |
| Cost of each coach | Sh.6,000,000 | Sh.9,200,000 |
| Fuel consumption-kilometres per litre | 12.5 | 8.0 |
| Annual licence per coach | Sh.35,000 | Sh.50,000 |
| Annual insurance per coach | Sh.34,000 | Sh.40,000 |
| Normal usage per day | 1,100 units |
| Minimum usage per day | 500 units |
| Maximum usage per day | 1,400 units |
| Lead time | 25-30 days |
| Economic order quantity (previously calculated) | 50,000 units |
| Range | Quantities (Units) | Price (Sh.) |
| 1 | 1-3,000 | 21 |
| 2 | 3,001-5,000 | 19 |
| 3 | 5,001-7,000 | 17 |
| 4 | 7,001-9,000 | 15.50 |
| 5 | 9,001-10,000 | 13 |
| Sh. | Sh. | |
| Financial ledger control account | - | 250,000 |
| Work in progress control account | 120,000 | |
| Finished goods control account | 110,000 | |
| Stores ledger control account | 20,000 | |
| 250,000 | 250,000 |
| Product | Units produced | Time allowed per unit (Minutes) |
| A | 640 | 63 |
| B | 1,280 | 120 |
| C | 2,400 | 100 |
| Grade of worker | Number of direct workers | Basic rate per hour | Hours worked per worker |
| 1 | 40 | 300 | 30 |
| 2 | 16 | 270 | 64 |
| 3 | 64 | 240 | 50 |
| Cost per component before discount | Sh.20 |
| Annual purchases | 150,000 components |
| Ordering costs | Sh.360 per order |
| Holding costs | Sh.3 per component per annum |
| Annual usage | 48,000 units |
| Purchase price | Sh.80 per unit |
| Ordering costs | Sh.120 per order |
| Annual holding costs | 10% of the purchase price |
| Sh. "Million". | |
| Machining | 400 |
| Finishing | 200 |
| Assembly | 100 |
| Materials handling | 100 |
| Inspection | 50 |
| Machining (%) | Finishing (%) | Assembly (%) | Materials Handling (%) | Inspection (%) | |
| Materials Handling | 30 | 25 | 35 | - | 10 |
| Inspection | 20 | 30 | 45 | 5 | - |
| Number of units | Wage rate per unit |
| 1 - 250 251 - 500 501 - 1,000 Over 1.000 | Sh. 500 550 600 650 |
| Number of units. | Rate of wages per unit Sh. |
| 1 - 250 251 - 500 501 - 1,000 over1,000 | 15 20 25 30 |
| Employee | Number of units produced | Spoilt Unit |
| Amboga Banyala Charlie | 2,000 1,800 1,650 | 200 100 50 |
| Date | Purchases | Sales | ||
| Quantity (Units) | Unit price Sh. | Quantity (Units) | Unit price Sh. | |
| January: 1 | 12,000 | 150 | ||
| 3 | 8,000 | 160 | ||
| 7 | 12,000 | 200 | ||
| 8 | 10,000 | 155 | ||
| 13 | 5,000 | 210 | ||
| 17 | 8,000 | 205 | ||
| 20 | 12,000 | 140 | ||
| 23 | 7,000 | 152.5 | ||
| 25 | 11,000 | 200 | ||
| 27 | 10,000 | 202.5 | ||
| 31 | 200 | 212 | ||
| Balances at the beginning of the month: | Sh. | |
| Stores ledger control account | 241,750 | |
| Work-in-progress control account | 192,100 | |
| Finished goods control account | 341,640 | |
| Prepayments of production overheads brought forward | 21,000 | |
| Transactions during the month: | ||
| Materials purchased | 761,500 | |
| Materials issued: | To Production | 263,500 |
| For Factory maintenance | 32,800 | |
| Total wages paid: | Direct | 220,100 |
| Indirect | 42,320 | |
| Direct wages charged to production | 141,100 | |
| Recorded non-productive time of direct wages | 52,300 | |
| Direct wages incurred in production of capital equipment | 26,700 | |
| Selling and distribution overheads incurred | 52,400 | |
| Other production overheads incurred | 122,000 | |
| Sales | 754,000 | |
| Cost of finished goods sold | 598,300 | |
| Cost of goods completed transferred to finished goods account | 621,300 | |
| Value of work-in-progress at the end of the month | 243,600 | |
| Sh. "000" | |
| Rent and rates | 12,800 |
| Machine insurance | 6,000 |
| Telephone charges | 32,000 |
| Depreciation | 18,000 |
| Production supervisor's salary | 24,000 |
| Heating and lighting | 6,400 |
| 70,400 |
| Department | |||||
| A | B | C | X | Y | |
| Floor area occupied (square metres) | 3,000 | 1,800 | 600 | 600 | 400 |
| Machine value (Sh. "000") | 240 | 100 | 80 | 40 | 20 |
| Direct labour hours ("000") | 3,200 | 1,800 | 1,000 | - | - |
| Labour rate per hour (Sh.) | 380 | 350 | 340 | 300 | 200 |
| Allocated overheads specific to each department (Sh. "000") | 2,800 | 1,700 | 1,200 | 800 | 600 |
| Service department X costs apportioned | 50% | 25% | 25% | ||
| Service department Y costs apportioned | 20% | 30% | 50% | ||
| Job 123 | Job 124 | |||
| Direct materials (Sh.) | 15,400 | 10,800 | ||
| Hours | Hours | |||
| Direct labour - Department: | A | 20 | 16 | |
| B | 12 | 10 | ||
| C | 10 | 14 |
| Required: The total production cost for each job. |
| 1 | GCW Ltd. has provided the following output and cost information: |
| Process | Output (Tons) | Cost (Sh. "000") | |
| Quarry | 100,000 | 350,000 | |
| Cutting | 90,000 | 250,000 | |
| Monuments | 25,000 | 300,000 | |
| Granite slabs | 60,000 | 400,000 | |
| Grit | 5,000 | 10,000 |
| 2 | A local distributor purchases all of the grit that is produced at a price of Sh.40,000 per ton. |
| 3 | Assume that the company uses the physical units method to allocate joint costs. |
| Range of quantities | Price (Sh.) |
| 1 - 3,000 3,001 - 5,000 5,001 - 7,000 7,001 - 9,000 9,001 - 10,000 | 21 19 17 15.50 13 |
| Department | Hours | Cost (Sh.) |
| MM | 1,800 | 45,000 |
| NN | 5,400 | 54,000 |
| 1 | The service department costs are apportioned to the production departments as follows: |
| Department | |||||
PP | MM 50% 40% | NN 20% 40% | PP - 20% | QQ 30% - | |
| 2 | The overheads of the production departments are absorbed into product cost using a rate per hour. |
| 3 | During the month of August 2018, the actual activity levels and costs were as follows: |
| Department MM NN PP | Hours 1,980 6,120 - - | Costs (Sh.) 43,200 52,200 10,800 7,200 |
| Sh. | ||
| Selling price per unit | 100 | |
| Direct materials | 7 kilogrammes at Sh.2 per kilogramme | 14 |
| Direct labour | 2 hours at Sh.8 per hour | 16 |
| Fixed overheads | 2 hours at Sh.16 per hour | 32 |
| Total cost | 62 |
| 1 | As at I October 2018, the opening balances for the cost ledgers were as follows: |
| Sh. | ||
| Direct materials | 15,000 | |
| Work-in-progress | 120,000 | |
| Finished goods | 72,000 |
| 2 | The following transactions took place during the month of October 2018: |
| Sh. | |||
| Direct material purchases | 89,000 | ||
| Materials issued to production | 90,000 | ||
| Direct labour paid | 102,000 | ||
| Indirect labour paid | 56,000 | ||
| Production overhead cost incurred | 159,000 | ||
| Sales (6,500 units) | 650,000 | ||
| Goods transferred to finished goods stock | 385,000 |
| 3 | As at 31 October 2018, closing stock balances were as follows: |
| Sh. | ||
| Direct materials | 14,000 | |
| Work-in-progress | 135.000 | |
| Finished goods | 54,000 |
| Computer hours | 85,000 |
| Fixed manufacturing overhead costs | Sh. 1,275.000 |
| Variable manufacturing overhead per computer-hour | Sh.3.0 |
| Computer hours | 60,000 |
| sh. | |
| Manufacturing overhead costs | 1,350,000 |
| Cost of goods sold | 2,800,000 |
| Inventories at the year-end: | |
| Raw materials | 400,000 |
| Work-in-progress | 160,000 |
| Finished goods | 1.040.000 |
| (i) | Compute the company's predetermined overhead absorption rate for the year. |
| (ii) | Compute under-applied or over-applied overhead cost for the year. |
| (iii) | It is the policy of the company to allocate any under or over-applied overheads to cost of goods sold. Determine the cost of goods sold to be charged to the income statement. |
| Cost ledger opening trial balance | ||
| Sh. | Sh. | |
| Financial ledger control account | 249,520 | |
| Work-In-Progress (WIP) control account | 125,210 | |
| Finished goods control account | 85,150 | |
| Stores ledger control account | 39,160 | |
| 249,520 | 249,520 | |
| Annual consumption of Exe (units) | 200,000 |
| Ordering cost per order (Sh.) | 18,750 |
| Carrying cost per unit (Sh.) | 3 |
| Sh. "000" | |
| Production departments | |
| X | 2,500 |
| Y | 2,000 |
| Z | 1,500 |
| Service departments | |
| A | 1,000 |
| B | 780 |
| Total | 7,780 |
| 1 | A technical assessment for the apportionment of the service department costs were as follows: |
| Department | X | Y | Z | A | B | |
| A | 30% | 30% | 20% | - | 20% | |
| B | 40% | 30% | 20% | 10% |
| 2 | Output for the production departments during the period are provided below: |
| Department | Units of outputs | |
| X | 200,000 | |
| Y | 100,000 | |
| Z | 50,000 |
Rates Depreciation: Buildings Depreciation: Machinery Maintenance of buildings Insurance. Buildings Insurance. Machinery Insurance. Inventory Insurance..Workman's.compensation Electricity: Lighting Electricity: Power Supervision Personnel, time keeping and payroll Canteen expenses | Sh."000" 25,000 45,000 20,000 15,000 5,000 4,000 12,000 4,000 20,000 24,000 60,000 40,000 12,000 286,000 |
| ........................................................ Area (square metres) Value of machines (Sh."000") Running of machines Average.inventory.value.(Sh."000") Wages paid (Sh."000") Number of employees | W 4,000 80,000 15,000 20,000 120,000 15 | X 2,000 60,000 7,000 15,000 170,000 20 | Y 3,000 60,000 8,000 15,000 80,000 10 | Z 1,000 - - 10,000 30,000 5 |
Date 3 July 7 July 18.July | Receipts 600 units at Sh.60 1,000 units at Sh.70 2,400.units.at.Sh.80 | Date 5 Julv 12 July 20 July 29 July 31.July | Issues 1,600.units 400 units 1,200 units 600 units 200 units |
| ................................................... Total attendance time Normal working hours Productive time Non productive time - Due to poor supervision - Normal machine repairs Basic hourly rate per hour | Direct.employees 19800 hours 18000 hours 18850 hours 400 hours 550 hours Sh.150 | Indirect.employees 7050 hours 6400 hours - - - - Sh.150 |
| Overtime is paid at a premium of 40% of base rate. 40% of the overtime for both categories was worked to meet specific request of a customer. A general bonus of Sh.625,000 was paid to all the employees. |
| Required: Wages control account to show the wages allocation for the period. |
| Department Allocated overheads (Sh.) No. of employees Maintenance orders Products Production (units) Direct material cost per unit (Sh.) Direct labour hours per unit: Machining (Sh.60 per hour) Finishing (Sh.50 per hour) Machine hour per unit: Machining ...................................................... | Machining 3,502,000 15 52 Benta 3,000 120 3 4 2 | Finishing 1,748,000 9 13 Centa 4,500 150 2 2 4 | Canteen 800,000 2 - Denta 2,000 170 1.5 2 3 | Maintenance 400,000 6 - |