Unit: Management accounting
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Login to Access| Sh. | Sh. | |
| Selling price | 200 | |
| Less: | ||
| Variable production costs | 120 | |
| Variable selling cost | 10 | 130 |
| Contribution | 70 |
| 1 | The budgeted fixed production cost is Sh.4,200,000 per annum for a normal production of 140,000 units |
| 2 | Budgeted fixed selling and administrative overheads are Sh.2,800,000 per annum. |
| 3 | The budgeted fixed costs are incurred evenly during the year. |
| 4 | There are two periods in a year, each of 6 months. |
| 5 | During the latest financial year, the following results were achieved: |
| Period 1 | Period 2 | ||
| 5 | Production (units) | 75,000 | 65,000 |
| Sales (units) | 60,000 | 70,000 |
| 6 | There was no opening inventory at the beginning of the year. |
| 7 | Fixed production costs and selling and administrative costs incurred during the year were equal to the budget. |
| Standard cost and selling price: | Sh. | |
| Direct material | (2 kilograms at 350 per kilogram) | 700 |
| Direct labour | (0.5 hours at Sh.1,600 per hour) | 800 |
| Production overhead: | ||
| Variable overheads | (0.5 hours at Sh.600 per hour) | 300 |
| (0.5 hours at Sh.600 per hour) | (0.5 hours at Sh.900 per hour) | 450 |
| Standard production cost | 2,250 | |
| Standard profit margin | 2,750 | |
| Standard selling price | 5,000 |
| 1 | Other budgeted costs during the period in relation to selling and distribution and administration were as follows: |
| 1 | Variable costs | Fixed costs (Sh.) | |
| Selling and distribution | 10% of sales | 9,000,000 | |
| Administration | 12,300,000 |
| 2 | During the year, the company had the following activity levels:
|
| 3 | Actual fixed production overheads was Sh.300,000 less than absorbed fixed production overheads. |
| 4 | Budgeted fixed selling and distribution overheads were Sh.50,000 less than the actual fixed overheads. |
| 5 | Melta Ltd. used an expected activity level of 24,000 direct labour hours to compute the predetermined overhead rates. |
| Type of overhead | Sh.“000” |
| Rent and taxes | 75,000 |
| General lighting | 30,000 |
| Indirect wages | 150,000 |
| Petrol and engine oil | 88,500 |
| Depreciation on tour buses | 500,000 |
| 843,500 |
| Total | Accommodation | Kitchen | Tours | Entertainment | |
| Direct wages (Sh.“000”) | 500,000 | 150,000 | 100,000 | 150,000 | 100,000 |
| Floor area (\(m^2\)) | 100,000 | 30,000 | 25,000 | 20,000 | 25,000 |
| Value of tour buses (Sh.“000”) | 1,250,000 | 350,000 | 650,000 | 150,000 | 100,000 |
| Lighting points | 60 | 20 | 15 | 10 | 15 |
| Number of petrol fillings | 150 | 40 | 50 | 60 | - |
| 1 | In August 2023, it is estimated that there will be 20 guest-nights in Accommodation and 480 meals will be served in the Kitchen. |
| 2 | Secondary allocation of overheads is as follows: |
| 2 | Cost centre Tours Entertainment | Accommodation 60% 50% | Kitchen 30% 30% | Tours - 20% | Entertainment 10% - |
| Variable cost per unit: | Sh. |
| Direct materials | 60 |
| Direct labour | 120 |
| Variable production overhead | 40 |
| Fixed production overhead | 80 |
| Variable selling overhead | 30 |
| 330 | |
| Fixed cost per month: | Sh. |
| Fixed production overhead | 2,400,000 |
| Fixed selling overhead | 1,800,000 |
| 4,200,000 |
| 1 | The product is sold for Sh.400 per unit. |
| 2 | Grate Ltd. budgeted to produce and sell 30,000 units per month. |
| 3 | Actual production and sales units for the months of January 2023 and February 2023 are as follows: |
| 3 | January February | Production (units) 30,000 30,000 | Sales (units) 26,000 34,000 |
| 4 | There was no opening inventory or work-in-progress as at the start of January 2023. |
| 1 | Predetermined overheard absorptions rate, based on direct labour hours are established for the two production departments. |
| 2 | The budgeted expenditure for these two departments for the period just ended, including the appointments of service department overheads was as follows:
|
| 3 | Budgeted direct labour hours were 13,100 hours for filling cost centre and 10,250 hours for sealing cost centre. |
| 4 | Service department overheads are apportioned as follows: |
| 4 | Canteen % | Boiler house % | ||
| Production department: | Filling centre | 40 | 50 | |
| Sealing centre | 50 | 30 | ||
| Canteen | Boiler house | |||
| % | % | |||
| Service department: | Canteen | - | 20 | |
| Boiler house | 10 | - | ||
| Total | 100 | 100 | ||
| 5 | During the period just ended, actual overhead costs and activity were as follows: |
| 5 | Sh. | Direct labour hours | |
| Filling centre | 74,260 | 12,820 | |
| Sealing centre | 38,115 | 10,075 | |
| Canteen | 25,050 | ||
| Boiler House | 24,375 |
| Period 1 | Period 2 | Period 3 | |
| Production (Kgs) | 30,000 | 38,000 | 27.000 |
| Sales (Kgs) | 30,000 | 27,000 | 38,000 |
| Opening stock (Kgs) | - | - | 11,000 |
| Closing stock (Kgs) | - | 11,000 | - |
| 1 | The financial details for one unit of product "Zed", based on a normal activity level of 30,000 Kgs is as follows: |
| 1 | Cost per Kg (Sh.) | |
| Direct material | 1.50 | |
| Direct labour | 1.00 | |
| Production overheads (300% of labour) | 3.00 | |
| Total cost | 5.50 |
| 2 | The selling price of product "Zed" is Sh.9 per kg |
| 3 | Administrative overheads are fixed at Sh.25,000 per period whereas one third of production overheads are fixed. |
| Sh. | |
| Opening Stock: | |
| - Finished goods (875 units) | 74,375 |
| - Work-in-progress | 32,000 |
| Direct labour | 450,000 |
| Raw materials consumed | 780,000 |
| Factory overheads | 300,000 |
| Goodwilu | 100,000 |
| Closing stock: | |
| - Finished goods (375 units) | 41,250 |
| - Work-in-progress | 38,667 |
| Sales (14,500 units) | 2,080,000 |
| Rent received from godowns | 18,000 |
| Interest received (net) | 45,000 |
| Selling and distribution overheads | 61,000 |
| Bad debts | 12,000 |
| Dividends paid | 85,000 |
| Administration overheads | 295,000 |
1 2 3 4 5 6 7 8 9 | Production overheads under-recovered in cost accounts Administrative overheads over-recovered in cost accounts Depreciation charged in financial accounts Depreciation recovered in cost accounts Interest on investments not included in cost accounts Obsolescence loss charged in financial accounts Income tax provided for in financial accounts Bank interest and dividends received in financial accounts Loss.due.to.depreciation.in.stock.value.charged.in.financial.accounts | Sh. 6,240 3,400 22,400 25,000 16,000 11,400 80,600 2,450 13,500 |