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UNIT CODE: DAF1201 UNIT TITLE: COST ACCOUNTING

ANSWER QUESTION ONE AND ANY OTHER TWO

1. a) ABC Ltd has an aggregate demand of 1.2 million unit. Each time they
place an order there is an ordering cost of sh 1,000 holding cost is sh 100 per
unit. Determine:
i) Economic Order Quantity (EOQ)
ii) No of order to be made based EOQ
iii) Total cost of stocks based on the EOQ. (4 Marks)

Solution
EOQ = 2DCo = 1200000X1000X2 = 4899 units
Ch 100

i).No of order = 1200000 = 244.9 245 Orders


4899

ii) Total cost = DCo + QCh = 1200000 (1000) + (4899)100 = 489,900


Q 4899

b) Assume the following purchases were made in ABC Ltd.


Date of Purchases Units Purchased Price/Unit
1st January 500 100
2 January
nd 600 200
3 January
rd 800 400
Units used on 4 January are 900. .
th

Required: Determine the cost of units used and the value of closing stocks
using FIFO, LIFO and weighted average. (6 Marks)
2. a) Discuss 4 applications of absorbtion costing. (4 Marks)

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b) The following is the budget of support Engineering works for the year 2002
Factory overheads ksh 62,000
Direct labour cost ksh 98,000
Direct labour hour 155,000
Machine hours 50,000
Actual labour hours were 40,000
Actual machine hours were 30,000
Actual direct labour costs were ksh 50,000
Actual direct material costs were ksh 45,000
REQUIRED:
a) Determine the overhead application rate on the basis of
i) Direct labour hours
ii) Direct labour cost
iii) Machine hours
iv) Overhead costs
v) Production cost. (6Marks)

3. a) Mini Bakeries Ltd has budgeted to produce and sell 100,000 unit of lakes
durng the next period. The sellig price per cake is sh 20 are variable cost per
cake is sh 12. Fixed overheads are budgeted to at sh 6,000,000.

Additional information:
i) Fixed cost will increase to sh 700,000 where activity is in excess
of 110,000 units
ii) Variable cost will full by 5% per unit(cake) of all unit where
activites is in excess of 100,000 cakes because of the economies
of scale.

The actual result of the period in which 115,000 units(cakes were produced
and sold were:
a) Sales revenue sh 2,242,500
b) Variable costs sh 1,320,000
c) Fixed costs sh 67,000

REQUIRED:
i) Prepare a summary which shows the budgeted results for
activity levels from 80,000 to 120,000 cakes using the above
information. (5 Marks)
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ii) Prepare a control statement comparing budgeted with actual
results where a fixed budget system is used based on 100,000
units. (5 Marks)

Solution found.

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