Name________________________

Id. No_______________________
P.O.Box______________________
City (Town)___________________
Region (Zone)_________________

UNITY UNIVERSITY COLLEGE

SCHOOL OF DISTANCE AND CONTINUING EDUCATION

Worksheet for Cost Accounting II (212)

This is a test paper you are expected to do on your own. It carries 15 points. The
test paper should be completed and mailed to the School of Distance and
Continuing Education for evaluation. Do not try to complete the worksheet until
you have covered all the lessons and exercises in the course material.

Any questions in the course that you have not been able to understand should be
stated on a separate sheet of paper and attached to this worksheet. Your tutor
will clarify them for you.

After completing this test paper, be certain to write your Name, Id.No and
Address on the first page. Your Name and Id.No on the other pages only.

Part 11

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Case study
1. In July ABC trading instrumentation inc. of Addis Ababa operand a subsidiary in
Kenya to distribute its products in east Africa. You have been employed as
management accountant in the subsidiary with the primary task of implementing
financial controls on its activities.
Investigation of the sales position reveals:

Actual sales ----------July--------------200000

August----------250000
September-------500000
Forecast sales--------October-----------300000
November---------300000
December---------200000

Although 90 percent of sales are on a credit basis, early collection experience indicates
that 80 percent of the credit sales are settled the month after invoicing, with the balance
cleared in the following month. The customers are manly government agencies and health
authorities; so there is little likelihood of bad debts.

The subsidiary buys all its products from the parent company in Addis Ababa. It has been
decided that its purchasing policy will be geared towards acquiring sufficient inventory in
one month to fed the following months sales. All purchases are to be settled in the month
after purchase. Gross margins are budgeted to be 40 percent on sales.

Monthly fixed costs amount to $40,000, inclusive of $2000 in depreciation. In addition,

basic salary costs will be $35,000 per month, plus commission of 10 percent on sales.
Other variable selling costs will amount to 5 percent of sales value. All of the foregoing
costs will be paid in the month of incurrence.

In November, the subsidiary is committed to acquiring additional motor vehicles, costing

$40,000. the parent company has insisted that the subsidiary maintains a minimum cash
at bank balance of $10000 at all times even if the consequence is that payments to the
parent company are deferred in whole or part.

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2.
Case study 2

General motors company produce four models of high-quality saloon cars-castle, rock,
Salisbury and Morningside. Despite the fact that the company operates a three-shift
system, productive capacity is constrained by the available man-hours. The monthly total
capacity is 15350 man-hours, and the fixed costs are $700,000 per month.

Further information is

Selling price variable cost maximum man-hours

Monthly demand per model
$ $ units
castle-----------------4800 3200 250 25
rock-------------------5700 4200 170 30
Salisbury ------------6900 5000 100 40
Morningside---------10000 6500 80 50

Required
1. What would be the best product and sales combination to maximize the monthly net
profit? (Assume that there is no opening or closing stock.)
2. Market research has indicated that the monthly sales of the Morningside saloon would
rise by 50 percent if additional special advertising expenditure of $50,000 per month
were incurred. Would you recommend to management that this step be taken: