Certified Accounting Technician Examination

Paper T4
Intermediate Level

Accounting for Costs

Thursday 10 June 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

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 Are the following statements true?

(1) Completed questionnaires, as part of a market research survey, are examples of data
(2) Monthly management accounting reports, resulting from the processing of financial transactions, are examples of
information
A Both statements are not true
B Only statement (1) is true
C Only statement (2) is true
D Both statements are true

2 The following is an extract from the list of accounts of a washing machine manufacturer:
Cost codes
Direct materials 1000–1999
Direct labour 2000–2999
Direct expenses 3000–3999
Production overheads 4000–4999

Which of the following are coded correctly?

Code Description
A 4160 wages of operatives who work on the product
B 2430 wages of production department supervisor
C 1670 cleaning materials
D 3020 royalties for component used in manufactured product

3 Machine parts are assembled in a factory. One of the components used in assembling machine part MP7 is component
C6.

Which of the following is an example of a cost unit in the factory?

A A unit of component C6
B A unit of machine part MP7
C The cost per unit of component C6
D The cost per unit of machine part MP7

4 Which of the following statements are true and which are false?
(1) In an integrated accounting system there will be a cost ledger control account
(2) An integrated accounting system has one combined set of ledger accounts
(3) An interlocking accounting system has separate cost and financial ledger accounts
Statement (1) Statement (2) Statement (3)
A False False True
B False True True
C True True False
D True False False

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5 Which of the following cost classifications can be applied to the straight-line depreciation of office equipment?
(1) Indirect
(2) Period
(3) Production
(4) Variable
A 1 and 2 only
B 1 and 4 only
C 2 and 3 only
D 3 and 4 only

6 Costs have been recorded at three output levels:

Production output 100,000 units 105,000 units 110,000 units
Total costs $207,000 $213,000 $218,200

Using the high–low method, what is the variable cost per unit (to two decimal places of $)?
A $0·89
B $1·04
C $1·12
D $1·20

7 The costs incurred in the manufacture of 1,000 units of a product are:

Direct materials $4,000
Direct labour $6,000
Variable overheads $2,000
Fixed overheads $8,000

If output increases by 25%, what will be the effect, if any, on the total cost per unit?
A Decrease by $1·60 per unit
B Decrease by $2·00 per unit
C Decrease by $5·00 per unit
D No effect

8 At the beginning of a period, 150 units of a component, which had been purchased at $6·40 per unit, were in
inventory. During the period, 290 units of the component were purchased (160 units at $6·50 followed by
130 units at $6·90). 315 units of the component were issued to production at the end of the period when the cost of the
125 units remaining was $800.

Which method is being used to price the issues of the component?

A First-in First-out
B Last-in First-out
C Periodic weighted average
D Weighted average

9 Which of the following may be used to support claims for overtime payments for salaried staff?
A Employee record cards
B Job cards
C Payslips
D Timesheets

3 [P.T.O.
10 The gross wages of the direct operatives in a production cost centre for a period are analysed as follows:
Direct operatives ($)
Productive hours at basic rate 37,640
Overtime premium 2,440
Idle time 590
Group bonuses 3,130

How much of the gross wages would normally be accounted for as direct labour?
A $37,640
B $40,080
C $40,670
D $43,210

11 In a factory operating job costing which of the following costs will be overheads allocated to individual cost
centres?
– Salaries of supervisors, each of whom are responsible for two cost centres, where no record is kept of their time
in each cost centre
– Wages of skilled operators assigned to individual jobs, in particular cost centres, with time recorded on time
sheets
– Wages of labourers who are moved from cost centre to cost centre and who maintain detailed time sheets. They
are not assigned to work on specific orders in each cost centre.
A Wages of labourers only
B Wages of skilled operators only
C Wages of labourers and salaries of supervisors
D Wages of skilled operators and salaries of supervisors

12 Which of the following is the most appropriate basis for apportioning the canteen costs in a factory?
A Direct labour hours
B Direct wages
C Indirect labour hours
D Number of factory employees

13 A company has two production cost centres (PC1 and PC2) and two service cost centres (SC1 and SC2). Overhead
allocation and apportionment is as follows for a period:
PC1 PC2 SC1 SC2
Overheads $460,200 $520,800 $122,000 $96,600
Reapportionment of SC1 35% 45% 20%
Reapportionment of SC2 30% 70%

What are the total overheads in PC2 after reapportionment of the service cost centre overheads?
A $605,500
B $643,320
C $660,400
D $667,720

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14 The following data are available relating to overheads in two production cost centres:
Cost centre A Cost centre B
Budget $54,030 $76,910
Actual ? ?
Absorbed $54,960 $76,250
Over/under-absorbed ? $520 under-absorbed

What is known on the basis of the available data above?

A Actual overheads in cost centre B were less than budget
B Overheads absorbed in cost centre B exceeded actual overheads
C Overheads were over-absorbed in cost centre A
D Overheads were under-absorbed in cost centre A

15 An accountancy practice had an overhead budget of $21,060 for a period. Actual overhead expenditure in the period
was $21,720. Overheads are absorbed on the basis of client hours worked which totalled 2,375 in the period and
resulted in under-absorption of $345.

What was the budgeted overhead absorption rate per client hour?
A $8·72
B $9·15
C $9·00
D $9·29

16 What production overheads are included in product costs using absorption costing?
A Direct overhead costs only
B Fixed overhead costs only
C Variable overhead costs only
D Both fixed and variable overhead costs

17 A company had total revenue of $169,000 in a period from the sale of 6,500 units of its single product. There was
no finished goods inventory at the beginning of the period and 200 units were in inventory at the end of the period.
Production costs in the period were:
Variable costs $93,130
Fixed costs $41,540
Fixed costs are absorbed on an actual basis using units produced.

What was the gross profit in the period?

A $30,055
B $34,330
C $35,570
D $38,350

5 [P.T.O.
18 A company, which manufactures and sells a single product, has the following sales and production data for a period:
Production 20,100 units
Sales 18,900 units
Profit has been calculated for the period, using both absorption costing and marginal costing.

Which combination of profit figures are consistent with the above production and sales data?
Absorption profit Marginal profit
A $10,000 $12,000
B $12,000 $10,000
C $12,000 $12,000
D $10,000 $11,200

19 Costs for Job 123 are:

Direct materials $460
Direct labour $600
Overheads 120% of direct labour cost
A profit margin of 20% of selling price is required.

What is the selling price of Job 123?

A $2,136
B $2,225
C $2,856
D $2,975

20 In a period, a manufacturing process incurred raw materials costs of $26,950 and conversion costs of $17,260.
There were no process losses. Completed output from the process in the period was 1,600 units and 400 units
remained unfinished, complete for materials and with 60% of the conversion costs applied. There was no opening
work-in-progress.

What was the production cost per unit in the period (to two decimal places of $)?
A $22·11
B $22·86
C $23·28
D $24·03

(40 marks)

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Section B – ALL FOUR questions are compulsory and MUST be attempted

1 (a) A company manufactures three joint products (A, B and C) in a common process. The following data relate to the
period just ended (P1):
Product A Product B Product C
Production and sales (units) 1,200 680 960
Selling price ($ per unit) 25·00 50·00 37·50
Administration and selling expenses ($) 6,000 5,500 7,000
Joint production costs totalled $71,000 in the period.

Required:
For Period P1, calculate the total net profit or loss of:
(i) the common process; (3 marks)
(ii) Product A, if joint production costs are apportioned on the basis of sales value. (4 marks)

(b) In the new period (P2) just commencing, joint production costs will be apportioned to products on the basis of
units of output. The joint production cost per unit is expected to be $25. Selling prices and administration and
selling expenses are expected to be unchanged from Period P1. The process overall is expected to be profitable.
It has now become possible to further process Product A, at an incremental production cost of $6 per unit, to form
Product ATWO. The selling price of Product ATWO would be $33 per unit. No additional administration and selling
expenses would be incurred.
One of the managers in the company has made the following suggestion:
‘Product A should be further processed because if sold at the split-off point a loss would be made in P2’.

Required:
(i) Comment on the manager’s basis for justifying the further processing of Product A; (4 marks)
(ii) Recommend, with supporting calculations, whether Product A should be further processed. (4 marks)

(15 marks)

7 [P.T.O.
2 The following data relate to Material X, one of the raw materials used by a company in the manufacture of its
products:
Annual average usage 12,250 kg (assume 1 year = 50 weeks)
Annual maximum usage 14,500 kg
Annual minimum usage 10,000 kg
Purchase price $6·50 per kg
Annual holding cost $0·80 per kg
Ordering cost $25·00 per order
Average lead time 2 weeks
Maximum lead time 21/2 weeks
Minimum lead time 11/2 weeks

Required:
Calculate for Material X the:
(a) Economic order quantity, based on average usage, using the formula √2CoD ÷ Ch. (4 marks)

(b) Minimum inventory control level. (6 marks)

(c) Maximum inventory control level. (4 marks)

(14 marks)

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3 A company manufactures and sells three products (X, Y and Z). Estimates relating to the three products for the next
period follow:
Product X Product Y Product Z
Sales demand (units) 22,000 8,000 15,000
Selling price ($/unit) 10·00 15·00 24·00
Variable costs ($/unit):
Direct materials 2·20 2·25 6·40
Direct labour 2·25 4·50 6·00
Variable overheads 0·75 1·50 2·00
Direct labour (hours/unit) 0·15 0·30 0·40
11,100 direct labour hours will be available. Other resources will be readily available. All direct workers will be paid
$15 per hour.

Required:
For the next period:
(a) Calculate whether direct labour will be the limiting factor. (3 marks)

(b) Calculate the contribution per unit and the contribution to sales ratio of each product. (4 marks)

(c) Determine the output of each product that will maximise total contribution. (9 marks)

(16 marks)

9 [P.T.O.
4 (a) Discounted payback is used by a company for initial screening of potential investment projects. For a project to go
to the next stage in the evaluation process, a discounted payback within three years is required. Discount factors
at the cost of capital of 11% per annum are:
Year 1 0·901
Year 2 0·812
Year 3 0·731
Year 4 0·659
Year 5 0·593
Two projects (C and D) are to be screened:
Project C:
Initial investment (Year 0) ($180,000)
Cash inflows:
Year 1 $60,000
Year 2 $80,000
Year 3 $100,000
Year 4 $60,000
Project D:
Initial investment (Year 0) ($460,000)
Cash inflows:
Years 1 to 5 $160,000 per year

Required:
Determine, with supporting calculations, whether each project passes the initial screening. (8 marks)

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(b) Two other investment projects (A and B) have already passed initial screening. The graph below shows the net
present values of the two projects over a range of discount rates from 0% to 24% per annum.
225

200
Project B

175
NPV
$000
150

125

100 Project A

75

50

25

0 2 4 6 8 10 12 14 16 18 20 22 24
Discount rate %

(25)

(50)

(75)

Required:
From examination of the graph, determine:
(i) the internal rate of return (%) of each project; (4 marks)
(ii) which project is ranked higher on the basis of net present value at the cost of capital of 11% per
annum. (3 marks)
Note: brief explanations, but no calculations, are required in answer to (b)(i) and (b)(ii).

(15 marks)

End of Question Paper

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