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Examination No.___________________

THE PUBLIC ACCOUNTANTS EXAMINATION

COUNCIL OF MALAWI

2006 EXAMINATIONS

ACCOUNTING TECHNICIAN PROGRAMME

PAPER TC9: COSTING AND BUDGETARY CONTROL

MONDAY 4 DECEMBER 2006 TIME ALLOWED : 3 HOURS

9.00 AM - 12.00 NOON

INSTRUCTIONS:

1. Number of questions on paper 7.

2. FIVE questions ONLY to be answered.

3. Each question carries 20 marks.

4. All your workings should be shown.

5. Marks will be awarded for clarity, correctness and logical presentation.

6. Use of non-programmable calculators is allowed.

7. Begin each answer on a fresh page.

8. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY

THE INVIGILATOR.

This question paper contains 8 pages

This question paper must not be removed from the examination hall.
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1. NDIZATHUZOMWE LTD has two production departments, Cutting and

Assembly which are supported by a further two service departments, Stores
and Maintenance. Both of the service departments undertake work for each
other as well as for the production departments. The costs of the service
departments are recharged as follows.

Cutting Assembly Stores Maintenance

% % % %
Stores to 40 30 - 30
Maintenance to 70 20 10 -

The cost information for period seven was as follows.

Cutting Assembly Stores Maintenance

K K K K
Actual overhead 77,000 99,000 125,000 50,000

Cutting Assembly
(Machine hours) (Direct labour hours)
Budgeted overhead after reallocations K180,000 K156,000
Budgeted activity 7,200 hours 48,000 hours
Actual activity 7,030 hours 52,580 hours

Required:

(a) Calculate the total actual overhead for both the Cutting and the
Assembly departments in period seven, after the apportionment of the
two service departments using the repeated distribution method.
(Show workings to the nearest K) 8 Marks

(b) Calculate the predetermined overhead absorption rates for the Cutting
and Assembly departments. 4 Marks

(c) Prepare the overhead control accounts for the Cutting and the
Assembly departments for period seven, showing any under- or over-
absorption of overheads. (Show all your workings). 8 Marks
(TOTAL: 20 MARKS)

Continued/
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2. ZINDIKIRANI Limited manufactures a single product, Phunziro. Production

operatives are paid a basic wage of K30 per hour worked, but an additional
50% premium is paid for any overtime hours. The basic working week is
38 hours.

During the month ended 30 April 2006, there were 4 weeks of production and
the company employed 30 production operatives. No overtime was worked
during the month and all 30 operatives worked for the full 38 hours for each
of the 4 weeks of production. During the month 456 units of Phunziro were
made.

Required:

(a) Calculate the labour cost for a single unit of Phunziro made in the
month ended 30 April 2006. 4 Marks

(b) The information below relates to the hours worked by 3 production

operatives during the month ended 31 May 2006.

Tadala : 140 basic hours and 17 hours overtime

Tawina : 150 basic hours and 22 hours overtime
Siphiwe : 120 basic hours and 20 hours overtime

Required:

Calculate, separately, the total wages earned by each of the operatives

Tadala, Tawina and Siphiwe during the month ended 31 May 2006.
6 Marks

Continued/
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(c) The company is considering introducing a bonus scheme for next year.
The details of the scheme are as follows:

In order to calculate the bonus, a standard production time of 10 hours

is to be allowed for each good unit of Phunziro. Rejected units do not
qualify for the bonus. The bonus will be calculated using the following
formula:

Bonus = time saved x 50% basic rate per hour

Assume that the scheme is introduced and that in the month of July
2006, the production staff worked for a total of 4,200 basic hours.
During the month, assume that 500 units of Phunziro were made, of
which 50 units were rejected as faulty. The basic rate of pay will
remain at K30 per hour.

Required:

(i) Calculate the total basic wages that would be payable to the
production operatives for July 2006. 2 Marks

(ii) Calculate the total bonus that would be payable to the

production staff for July 2006. 6 Marks

(iii) Explain why a company might have to increase the inspection

of finished goods if a bonus scheme is introduced. 2 Marks
(TOTAL: 20 MARKS)

Continued/
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3. JENDA Limited manufactures a single product, Fanana, in two successive

processes. The following information relates to the month of April 2006:
Process 1 Process 2
Opening work-in-progress Nil Nil
Materials input during the month 500 units at a cost 400 units from Process 1
of K10,250
Additional materials - K11,300
Labour cost for the month K33,000 K14,280
Production overhead cost for the month K18,040 K8,120
Normal loss Nil 50 units
Transferred to process 2 400 units -
Transferred to finished goods stock - 350 units
Closing work-in-progress 100 units Nil
100% complete for materials
40% complete for conversion costs

The normal loss in Process 2 was detected at the end of the process, and was
sold as scrap for K800 and was credited to Process 2. There was no abnormal
loss in either process.

Required:

For the month of April 2006, produce separately, ledger accounts for Process 1
and Process 2. Show clearly the values of goods transferred between
processes and to finished goods stock and the value of work-in-progress. The
accounts should also clearly show the units as well as values.

(TOTAL : 20 MARKS)

Continued/
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4. (a) (i) What is a flexible budget? 2 Marks

(ii) Mention two advantages of preparing flexible budgets.
4 Marks
(b) NYAMULANI Limited is a small company which manufactures a
single product, Dengu. The companys directors have just received the
actual results for May 2006 for comparison with the budget for the
same period, set out below.
Actual
Production and sales of Dengu (units) Budget Results
40,000 48,000
K K
Sales revenue 50,000 55,200
Direct materials 12,000 16,800
Direct labour 8,000 10,290
Variable overheads (allocated on the basis of
labour hours 5,000 5,560
Fixed overheads 15,000 16,500
Total costs 40,000 49,150
Profit 10,000 6,050

The directors of the company are concerned about the results,

particularly bearing in mind that the following operational changes were
authorized after the budget for May 2006 had been prepared in the belief
that they would increase the profitability of Nyamulani Limited.

(1) The unit selling price of Dengu was reduced from K1.25 to
K1.15 on 1 May 2006 in an attempt to increase sales.

(2) To reduce operating costs, it was decided to use a cheaper but

more wasteful alternative material, thereby obtaining a 15% price
reduction.

(3) The hourly rate for direct labour was increased from K5.00 to
K5.25 in order to encourage higher productivity. However,
overtime had to be authorized during the month in order to meet
demand.

(4) There was a one-off sales promotion campaign costing K2,000.

Required:
Prepare a flexible budget which will be useful for management
control purposes.
14 Marks
(TOTAL: 20 MARKS)
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Continued/
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5. BEMBEKE Limited manufactures a single product. The following standards

relate to the product:

Direct material 10 litres at K25 per litre

Direct labour 2 hours at K45 per hour

For the most recent accounting period, the following information has been
extracted from the accounting records of the company.

Production 1,000 units

Direct material 9,500 litres were bought at a total cost of K247,000
Direct labour 1,900 hours were worked and paid for at a total cost of K94,000

Required:

(a) Calculate the following variances:

(i) material price; 3 Marks

(ii) material usage; 3 Marks
(iii) labour rate; 3 Marks
(iv) labour efficiency. 3 Marks

(b) Identify any relationship between the variances that may be revealed by:

(i) the material price and material usage variances calculated in (a) (i)
and (ii), above; 4 Marks

(ii) the labour rate and labour efficiency variances calculated in (a) (iii)
and (iv), above. 4 Marks
(TOTAL: 20 MARKS)

Continued/
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6. KUSULA Limited makes three products, all of which use the same machine
which is available for 50,000 hours per period.

The standard costs of the products per unit are as follows.

Axes Hoes Pangas
K K K
Direct materials 70 40 80
Direct labour:
Machinists (K8 per hour) 48 32 56
Assemblers (K6 per hour) 36 40 42
Total variable cost 154 112 178

Selling price per unit K200 K158 K224

Maximum demand (units) 3,000 2,500 5,000

Kusula Ltd could buy externally similar quality products at the following
unit prices.

Axes K175
Hoes K140
Pangas K200

Required:

(a) Calculate the deficiency in machine hours for the next period. 6 Marks

(b) Determine which product or products and quantities, if any, should be

bought externally. 14 Marks
(TOTAL : 20 MARKS)

Continued/
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7. (a) In accounting for the costs of an organization, there is need to put in

place a system of cost bookkeeping. The overall bookkeeping routine
will vary from one organization to another but either an integrated or
an interlocking system will be used.

Cost accounting systems keep information on the value of individual

stock items, the costs of individual products or jobs and total costs,
which are recorded in control accounts.

Required:

(i) Describe each of the following systems of cost bookkeeping:

(1) An interlocking system; 2 Marks

(2) An integrated system. 2 Marks

(ii) (1) Mention any two features of an integrated cost

bookkeeping system. 2 Marks

(2) Mention one advantage and one disadvantage of an

integrated cost bookkeeping system. 2 Marks

(b) (i) Distinguish between joint products and byproducts and state
how each one of them is treated in process costing. 4 Marks

(ii) Describe any two methods of valuing joint products and state
any limitations of the methods that you have described.
8 Marks
(TOTAL: 20 MARKS)

END