Paper 7 Cost & Management Accounting
Paper 7 Cost & Management Accounting
Paper 7 Cost & Management Accounting
LEVEL ONE
INSTRUCTIONS TO CANDIDATES:
SECTION B
Attempt four of the five questions in this section
Question 2
(a) Explain any four users of management accounting information and explain
their needs.
(4 marks)
(b) Distinguish between:
(i) labour cost accounting and payroll accounting. (2 marks)
(ii) preventive costs and replacement costs of labour turnover.
(2 marks)
(c) Katandise Super Duuka (KSD) is a leading producer of pancakes in the
Kawempe division of Kampala city. KSD uses 20 litres of cooking oil per
week, at a cost of Shs. 5,000 per litre and incurs Shs 15,000 for receiving
the cooking oil from the supplier. KSD’s re-order period is 2 to 4 weeks,
minimum and maximum usage are 30 litres and 35 litres per week
respectively. The cost of holding the cooking oil is 8% of the cost per litre.
Note: KSD’s year has 42 weeks.
Required:
Compute KSD’s:
(i) economic order quantity that will minimise annual costs. (2 marks)
(ii) number of orders to be placed in order to minimise the cost of
inventory.
(1 mark)
(iii) total cost of managing the inventory. (2 marks)
(iv) minimum and maximum stock levels. (2 marks)
(v) average stock level. (1 mark)
(d) Explain any four assumptions of economic order quantity.
(4 marks)
(Total 20 marks)
Question 3
(a) Distinguish the following terms:
(i) cost object and cost centre. (2 marks)
(ii) integrated accounting system and interlocking accounting system.
(2 marks)
(b) Kamuli Animal Feeds (KAF) produces cattle feeds known for boosting milk
production. KAF planned to produce 200 bags of the feeds during the
month of December, 2018 from its three production plants located in
western, northern and central Uganda. The following information relates
to the three production plants:
Details Western Northern Central
Labour hours (per bag) 20 15 16
Planned production (bags) 100 30 70
Contribution per bag (Shs) 12,000 18,000 36,000
KAF anticipates to experience labour shortage since December is a month
with a long period of festivities and 3,370 labour hours are expected to be
available.
Fixed costs Shs 5,000,000 and variable cost per bag Shs 75,000 are
expected to be incurred during the month of December 2018. KAF sells a
bag of cattle feeds at Shs 125,000.
Required:
(i) Determine KAF’s production plan for the month. (7 marks)
(ii) Prepare KAF’s profit statement for the month. (3 marks)
(c) Rwaki and Associates (R&A), is a firm of certified public accountants. The
firm was contracted in November 2018 by Forever Uganda Limited (FUL)
to audit their financial statements of the past five years starting from 1
July, 2013 to 30 June, 2018.
R&A has decided to employ 10 part-time auditors each at Shs 30,000 per
hour for this contract.
The following additional information relates to the contract.
1. Total budgeted overheads were Shs 5,000,000 and there were 200
total budgeted labour hours relating to these overheads.
2. Actual labour hours taken were 80 to produce five audit reports.
3. Stationery expenses incurred for the contract were Shs 2,000,000
per audit report.
4. FUL agreed to pay R&A, Shs 12,000,000 for each audit report
produced.
Question 5
(a) Distinguish between capacity and activity ratios as used in budgetary
control.
(2 marks)
(b) Mr. Kwagalakwe Herrera is a sole proprietor trading as Kwagalakwe
Business Enterprises (KBE) and deals in making craft shoes and handbags.
KBE takes 2 hours and 4 hours to make a pair of sandals and one handbag
respectively. During the month of October 2018, KBE used 220 hours to
make 48 pairs of sandals and 36 handbags as compared to what had been
budgeted of 40 pairs of sandals and 25 handbags.
Required:
Compute the following control ratios:
(i) Activity. (3 marks)
(ii) Capacity. (3 marks)
(iii) Efficiency. (2 marks)
(c) Hade Confectionaries Limited (HCL) makes cakes and uses a standard
costing system. The following information relates to production and sales
for the month of October 2018:
Details Budget Actual
Sales/ output (cakes) 15,000 13,500
Selling price per cake (Shs) 87,000 85,500
Direct materials per cake (kg) 3 3.35
Material prices per kg (Shs) 7,500 7,800
Direct labour hours per cake 2 2
Labour hour rate (Shs) 20,000 20,000
Variable overheads (Shs ‘000’) 26,400 27,200
Fixed overheads (Shs ‘000’) 3,500 3,620
HCL does not maintain inventories of cakes.
Required:
Prepare HCL’s budgeted and actual variance profit statement for the
month of October, 2018.
(10 marks)
(Total 20 marks)
Question 6
(a) Explain any three differences between traditional costing and activity-
based costing (ABC) systems.
(6 marks)
(b) Describe how overheads can be classified.
(4 marks)
(c) The following are semi-variable maintenance costs and the corresponding
machine hours incurred in a Bwaise welding workshop for a period of six
months for the year ending 30 September, 2018.
Month Maintenance costs Machine hours
Shs ‘000’
April 4,800 2,000
May 4,200 1,800
June 4,400 2,000
July 6,000 2,400
August 4,500 1,500
September 5,000 1,400
Required:
Using the least squares method, determine maintenance costs that will be
incurred during the month of December, 2018 when 3,500 machine hours
are expected to be available.
(10 marks)
(Total 20 marks)