EXAMINATION : FOUNDATION LEVEL

SUBJECT : COST ACCOUNTING

CODE : A4

EXAMINATION DATE : TUESDAY, 10TH MAY, 2022

TIME ALLOWED : THREE HOURS (9:00 A.M. – 12:00 NOON)

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GENERAL INSTRUCTIONS

1. There are FOUR questions in this paper.

2. Answer ALL questions.

3. Marks are shown at the end of each question.

4. Show clearly all your workings in the respective answers where applicable.

5. This question paper comprises 7 printed pages.

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QUESTION 1

(a) For each of the questions given below, choose the most correct answer among the four
given alternatives. Indicate your answer by writing the appropriate letter A, B, C or D
in your answer booklet.

(i) Which of the following describes a cost unit?

A. Cost per unit of output.
B. Direct costs.
C. Unit of product.
D. Production department.

(ii) Which is prime cost?

A. Total direct costs only.
B. Total indirect costs only.
C. Total non-production costs.
D. Total production costs.

(iii) Consider the following statements in relation to management information:

(1) It should always be provided regardless of its cost.

(2) It is data that has been processed in such a way as to be meaningful to the
person who receives it.
(3) It should not be provided until it is as detailed and accurate as possible.

Which of the above statements is/are true of good management information?

A. (1) only
B. (2) only
C. (1) and (3)
D. (2) and (3)

(iv) A company carries out production in accordance with the special requirements of
each customer. Which costing method is MOST appropriate?
A. Batch costing.
B. Job costing.
C. Process costing.
D. Service costing.
(v) A company manufactures a single product. Production and sales quantities for the
period were:
Production Sales
Budget 100,000 units 102,000 units
Actual 97,000 units 96,000 units
The fixed production overhead absorption rate is TZS.1,400 per unit.
If marginal costing had been used instead of absorption costing how would the
profit for the period have differed?
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 A. TZS.1,400,000 less using marginal costing.
B. TZS.1,400,000 more using marginal costing.
C. TZS.4,200,000 less using marginal costing.
D. TZS.4,200,000 more using marginal costing.
(vi) Which of the following describes the margin of safety?
A. Actual contribution margin achieved compared with that required to break-
even
B. Actual sales compared with sales required to break-even.
C. Actual versus budgeted net profit margin.
D. Actual versus budgeted sales.

(vii) The following data relates to a company with a single product:

Selling price TZS.1,250 per unit.
Fixed production costs TZS.7,700,000 per period.
Fixed non-production costs TZS.4,600,000 per period.
Break-even sales per period 24,600 units.
What is the contribution per unit?
A. TZS.313
B. TZS.500
C. TZS.750
D. TZS.937
(viii) What distinguishes absorption costing from marginal costing?
A. Product costs include both prime cost and production overhead.
B. Product costs include both production and non-production costs.
C. Stock valuation includes a share of all production costs.
D. Stock valuation includes a share of all costs.

(ix) Overheads in a production cost centre for a period is given as:

Budget TZS.7,460,000
Absorbed TZS.7,189,000
Actual TZS.7,322,000

What is the overhead over/under absorbed?

A. TZS.271,000 under absorbed.
B. TZS.271,000 over absorbed.
C. TZS.133,000 over absorbed.
D. TZS.133,000 under absorbed.
(x) Which one of the following statements describes the purpose of an Economic Order
Quantity (EOQ) for a raw material?
A. To minimize the total cost of purchasing and storing the material.
B. To minimize the stockholding quantity of the material.
C. To minimize the stockholding costs of the material.
D. To enable the reorder level of the material to be established.
(20 marks)

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(b) For each of the following statements, state whether the statement is true or false. Indicate
your answer by writing “TRUE” for the correct statement and “FALSE” for the
incorrect statement in your answer booklet.
(i) If a university sets up a web-based information system that faculty could access to
record student grades and to advise students, that would be an example of an
extranet.
(ii) Non-production overheads are usually omitted from stock valuation because they
are incurred after the stock has been brought to its present location and condition
correct.

(iii) In case of rising prices (inflation), FIFO method will provide highest value of
ending inventory but lowest value of profit.

(iv) If sales is less than production and there is no opening stock, it suggests there is
ending inventory. In such a scenario, profit under marginal costing will be less
than the one shown under absorption costing.

(v) Absorption costing helps in preparation of fixed budget. (10 marks)

(c) Given the following items, you are required to pair each item from LIST A with the
statement from LIST B appropriately. In pairing the items with statements, write the
roman number from LIST A against the corresponding letter from LIST B in your
answer booklet:
LIST A
(i) Time series
(ii) Cyclical variation
(iii) Irregular variation
(iv) Seasonal variation
(v) Secular trend

LIST B
A. Upward trend in sales revenue.
B. Accurate trend of data without seasonal fluctuation.
C. Changes and direction of change in values of variables over a period of time.
D. Trend showing cyclical fluctuation in business.
E. Trend showing no specific variation or movement i.e. erratic behaviour.
F. Trend showing variation over a short period.
G. Trend showing sales and total costs for a given period.
H. Trend showing cyclical fluctuation in profit. (10 marks)
(Total: 40 marks)
QUESTION 2
The following information relates to product JN40, produced by Brotherly Plc during the
month of January. This represents the information that remains after a fire in the premises
destroyed most of the accounting records:

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 Standard material input per unit 20 litres
Standard price of input materials TZS.2,000 per litre
Standard wage rate is TZS.6,000 per hour
Standard production hours allowed 5 hour per unit
Fixed production is absorbed at 100% of direct labour wages
During the month of January the following occurred:
• Actual price paid for materials purchased was TZS.1,950 per litre
• Total direct wages cost was TZS.156,000,000
• Fixed production overhead incurred was TZS.158,000,000
The following variances were also determined;
Favourable (TZS.) Adverse (TZS.)
Direct Materials - Price 8,000,000
- Usage 5,000,000
Direct Labour - Rate 5,760,000
- Efficiency 2,760,000
Fixed production overhead expenditure 8,000,000

REQUIRED:
Use the above available information for the month of January to calculate the following:
(a) Budgeted output in units of JN40. (3 marks)
(b) Number of litres of direct materials purchased. (5 marks)
(c) Actual litres of direct materials used. (10 marks)
(d) Average actual wage rate per hour. (2 marks)
(Total: 20 marks)

QUESTION 3
Naimma Life Boats Company, specialized on manufacturing of medium size plastic boats that
are purchased by different recreation centres specialized in blue economy entertainments. The
boats are produced in two processing departments of Assembly and Finishing.
In the Assembly Department, all of the direct materials are added at the beginning of the
process, overhead is applied evenly through the entire process, and labour is added evenly only
during the last 50% of the process.
In the Finishing Department, materials and labour are added evenly through the first half of
the process, while overhead is applied evenly throughout the entire process.
Naimma Life Boats Company uses process costing, and for the month of July 2021 had the
following production information:
Details Assembly Department Finishing Department
Direct materials costs TZS.23,220,000 TZS.41,256,000
Direct labour costs TZS.54,180,000 TZS.24,066,000
Production overhead applied TZS.81,270,000 TZS.36,099,000
Beginning work in process units - -
Units started during July 2021 2,250 1,800
Units completed and transferred out 1,800 1,530
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At the end of July, units remaining in work in process in Assembly Department were 30%
complete, while units in the ending work in process in the Finishing Department were 70%
complete. During the month, 1,350 boats were sold at an average rate of TZS.540,000 of which
40% is on cash basis while the remaining is collected on the following month.

REQUIRED:
(a) (i) Calculate the number of equivalent units produced for each cost category in
Assembly Department during the month of July 2021. (5 marks)
(ii) Calculate the number of equivalent units produced for each cost category in
Finishing Department during the month of July 2021. (5 marks)
(b) (i) Compute the Assembly cost per each boat produced during the month of July.
(2.5 marks)
(ii) Compute the Finishing cost per each boat produced during the month of July.
(2.5 marks)
(c) (i) Compute the total production cost per each boat produced during the month of
July. (2.5 marks)
(ii) Prepare the journal entry to record the sales made in July 2021.
(2.5 marks)
(Total: 20 marks)

QUESTION 4
(a) Explain the meaning of ‘Cash Budget’ and outline any three (3) benefits obtained from
preparation of cash budget. (4 marks)
(b) The following information relates to Namswea Company Ltd:

Months Wages Material Overheads Sales

Incurred Purchased
TZS. TZS. TZS. TZS.
February 6,000,000 20,000,000 10,000,000 30,000,000
March 8,000,000 30,000,000 12,000,000 40,000,000
April 10,000,000 25,000,000 16,000,000 60,000,000
May 9,000,000 35,000,000 14,000,000 50,000,000
June 12,000,000 30,000,000 18,000,000 70,000,000
July 10,000,000 25,000,000 16,000,000 60,000,000
August 9,000,000 25,000,000 14,000,000 50,000,000
September 9,000,000 30,000,000 14,000,000 50,000,000
(i) It is expected that the cash balance on 31st May will be TZS.22,000,000.
(ii) The wages may be assumed to be paid within the month they are incurred.
(iii) It is the company policy to pay creditors for materials three months after receipt.
(iv) Debtors are expected to pay two months after delivery.

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 (v) Included in the overhead figures is TZS.2,000,000 per month which represents
depreciation on one delivery van.
(vi) There is one month delay in paying the overhead expenses.
(vii) 10% of monthly sales are for cash and 90% are sold on credit.
(viii) A commission of 5% is paid to agents on all sales on credit but this is not paid until
the month following the sales to which it relates.
(ix) It is intended to repay a loan of TZS.25,000,000 on 30th June.
(x) Delivery is expected in July of a new machine costing TZS.45,000,000 of which
TZS.15,000,000 will be paid on delivery and TZS.15,000,000 in each of the
following months.
(xi) Assume that overdraft facilities are available if required.
REQUIRED:
Prepare a cash budget for months of June, July and August.
(16 marks)
(Total: 20 marks)

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