Cost Accounting

Question 1: (20 Marks)
A) Calculate Purchases from the following figures: (5 Marks)
Opening Stock $44,000
Closing Stock $54,000
Cost of Sales $267,000
B) Prepare a cost sheet using following information, calculating gross Profit: (10 Marks)
Opening Stock Closing Stock
Raw Material $8,000 $12000
Work in Process $12,000 $16,000
Finished Goods $22,000 $17,000
Purchases $171,000
Carriage In $3,200
Direct Labor $17,500
Factory Overheads $77,000
Administration Overheads $43,000
Selling and Distribution O/H $22,800
Sales $475,000
C) What are the objectives and importance of cost accounting? (5 marks) (300 words)
©Al Tareeqah Management Studies – 2021 4
Question 2: (20 Marks)
A) Ehlo Company is a multiproduct firm. Presented below is information concerning one of
its products, the Hawkeye.
Date Transaction Quantity Price/Cost
1/1 Beginning
Inventory
1,000 $12
2/4 Purchase 2,000 $18
2/20 Sale 2,500 $30
4/2 Purchase 3,000 $23
11/4 Sale 2,200 $33
Compute cost of goods sold, assuming Ehlo uses:
(a) Periodic FIFO
(b) Perpetual FIFO
(c) Periodic LIFO
(d) Perpetual LIFO
(e) Periodic weighted-average
(f) Perpetual moving average
B) Prudent Manufacturer provides the following data of their manufacturing operation.
a) Minimum Consumption: 2200 units per day
b) Maximum Consumption: 2500 units per day
c) Normal Consumption: 2250 Units per day
d) Reorder period: 20-25 days
e) Normal Reorder Period: 22 days
f) Reorder Quantity: 44,000 Units
Calculate:
a) Minimum stock level
b) Maximum Stock Level
c) Reordering Level
d) Average Stock Level
©Al Tareeqah Management Studies – 2021 5
QUESTION 3
A) Pearson Inc. provides the following information:
i. Standard Material Cost (Per Unit) 7.40 Kg @ $ 10 / Kg
ii Actual Material Cost (Per Unit) 6.80 Kg @ $ 12 / Kg
iii Standard Labour Cost (Per Unit) 3.50 hr @ $10.5 / Hr
iv Actual Labour Cost (Per Unit) 2.90 Hr @ $12.8 / Hr
1000 Units were manufactured.
Calculate: (12 Marks)
a) Direct Material Price Variance
b) Direct Material Quantity/Usage Variance
c) Total Material Cost Variance
d) Direct Labour Rate Variance
e) Direct labour Efficiency variance
f) Total Labour Cost Variance
B) Calculate variable overhead spending variance if actual labour hours used are 260,
standard variable overhead rate is $19.30 per direct labour hour and actual variable overhead
rate is $13.30 per direct labour hour. Also specify whether the variance is favorable or
unfavorable. (3 marks)
C) Explain the importance of standard Costing. (5 Marks) (300 words)
©Al Tareeqah Management Studies – 2021 6
Question 4: (20 Marks)
A) CVP Analysis and Cost Structure (Single Product). Riviera Incorporated produces flat
panel televisions. The company has annual fixed costs totaling $10,000,000 and variable costs
of $600 per unit. Each unit of product is sold for $1,000. Riviera expects to sell 70,000 units
this year. Required:

1. Find the break-even point in units.
2. How many units must be sold to earn an annual profit of $2,000,000?
3. Find the break-even point in sales dollars.
4. What amount of sales dollars is required to earn an annual profit of $500,000?
5. Find the margin of safety in units.
6. Find the margin of safety in sales dollars.
7. How much will operating profit change if fixed costs are 15 percent higher than anticipated?
   Would this increase in fixed
   (14 Marks)
   B) Reliable manufacturing Company has been manufacturing its own widgets that
   are used in producing its final product. The cost of manufacturing 10,000
   widgets is summarized below.
   Direct materials $20,000
   Direct labor 16,000
   Variable factory overhead 9,000
   Fixed factory overhead 15,000
   Total manufacturing costs $60,000
   A supplier offers to produce the widgets that Reliable Company needs for $6 per
   widget.
   If the company decides to buy from the supplier, 60% of the fixed factory overhead
   which represents depreciation and insurance costs will still continue. 40% will be
   avoided.
   Should the company continue to make the widget or purchase it from the outside
   supplier? (6 Marks
   ©Al Tareeqah Management Studies – 2021 7
   QUESTION 5: (10 MARKS)
   A) The Peter equipment company estimates its carrying cost at 15% and its ordering cost
   at $90 per order. The estimated annual requirement is 78,000 units at a price of $40
   per unit.
   Required: (6 Marks)
   (i). What is the most economical no. of units (EOQ) to order?
   (ii). No. of orders to be placed in a year.
   B) Explain the importance of controlling material cost, using EOQ, ABC analysis and JIT
   tools.

Sample Solution

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