INSTITUTE OF CHARTERED SECRETARIES

AND ADMINISTRATORS IN ZIMBABWE

EXAMINATION QUESTION PAPER

SUBJECT: COST AND MANAGEMENT ACCOUNTING

PART: C (PROFESSIONAL PROGRAMME I)

DATE: AUGUST 2018 TIME: 13:15 to 16:30 HOURS

DURATION: 3 hours plus 15 minutes reading time

INSTRUCTIONS TO CANDIDATES:
Candidates must answer FOUR out of five questions.

SECTION A
Question 1 is COMPULSORY and carries 40 marks.

SECTION B
Answer any THREE questions from this section. Each question carries 20 marks.

Total – 100 marks

Assume that all the different requirements of a question are independent of each other
unless it is explicitly stated otherwise.
Show all your calculations in a clear and concise manner.

The examination script is the property of ICSAZ and is not to be removed from the examination
venue.
 SECTION A

(This question is COMPULSORY)

QUESTION 1

a) Various users of accounting information can be divided into two categories.

REQUIRED:
i) Name any three (3) internal users and any three (3) external users of accounting
information within the organisation.
ii) Define a cost object.

b) Makoni Ltd had the following transactions in one of its raw materials during
the month of July 2018.

Opening Stock 40 units @ $10 each

July 4 Bought 140 units @ $11 each
July 10 Used 90 units
July 12 Bought 60 units @ $12 each
July 13 Used 100 units
July 16 Bought 200 units @ $10 each
July 21 Used 70 units
July 23 Used 80 units
July 26 Bought 50 units @ $12 each
July 29 Used 60 units

REQUIRED:
Write up the stores ledger card using:
i) FIFO
ii) AVCO

c) In a manufacturing and distribution company, workers book their time as

they enter to commence work in the morning and book their time again in
the evening as they go home. Accordingly, workers are paid their
wages/salaries at the end of the week or month. When workers are paid on
time basis, there is usually a difference between the time for which workers
are paid and the actual time spent by them in production.

REQUIRED:
i) Name the five objectives of time-booking.
ii) Name and briefly explain with examples two classes of idle time.

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d) In the course of manufacture of the main product A, by-products X and Y also
emerge. The joint expense of manufacture amount to $119 550. All the three
products are processed further after separation and sold as per details given
below:

Details Main Product By-Products

A X Y
Sales $90 000 $60 000 $40 000
Cost incurred after separation $6 000 $5 000 $4 000
Profit as percentage of sales 25 20 15

Total fixed selling expenses are 10% of total cost of sales which are
apportioned to the three products in the ratio of 1:2:2.

REQUIRED:
i) Prepare a statement showing the apportionment of joint costs to the
main product and the two by-products.
ii) If by-product X is not subjected to further processing and is sold at split-
off point for which there is a market, at $58,500 without incurring any
selling expenses, would you advise its disposal at this stage? Show
workings.

e) An enterprise manufactures and sells a perishable product. The maximum

daily production is 500 units. The following information is available:
$
Selling price per unit 20
Variable costs 10

Products which are not sold during the day must be removed at a cost of
$0.10 per unit.

A survey of sales during the previous 150 days shows the following:
Demand Number of days Probability

100 10 0.07
200 30 0.20
300 50 0.33
400 40 0.27
500 20 0.13
150 1.00

REQUIRED:
Calculate the number of units that must be manufactured daily to yield the
maximum profit for the enterprise.

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 SECTION B
(Answer any THREE questions from this section)

QUESTION 2

(a) Mhuka Public Limited Company manufactures three products in two

production departments, a machine shop and fitting section: it also has
two service departments, a canteen and a machine maintenance section.
Below are next year’s budgeted production data and manufacturing costs
for the company.

Details Product Product Product

Maff Naff Taff
Production 4 200 units 6 900 units 1 700 units
Prime Cost:
Direct Materials $11 per unit $14 per unit $17 per unit
Direct Labour:
Machine Shop $6 per unit $4 per unit $2 per unit
Fitting Section $12 per unit $3 per unit $21 per unit
Machine hours/unit 6 hours per unit 3 hours per unit 4 hours per unit

Details Machine Fitting Canteen Machine Total

Shop Section Maintenance
Budgeted overheads ($)
Allocated overheads 27 660 19 470 16 600 26 650 90 380
Rent, rates, heat and light 17 000
Depreciation and
insurance 25 000

Additional data:
Book value of
equipment ($) 150 000 75 000 30 000 45 000
Number of employees 18 14 4 4
Floor space occupied (m2) 3 600 1 400 1 000 800

It has been estimated that approximately 70% of the machine maintenance

section’s costs are incurred servicing the machine shop and the remainder
incurred servicing the fitting section.

REQUIRED:
i) Calculate the budgeted overhead absorption rates on:
 A machine hour rate for the machine shop
 A rate expressed as a percentage of direct wages for the fitting section.
ii) Calculate the budgeted manufacturing overhead cost per unit of product Maff.

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 (b) The Production Director of Mhuka Private Limited Company has noted that
the actual overheads incurred and units produced are usually different
from the budgeted resulting in profits of each month end being distorted
by over/under absorbed overheads. He has suggested that it will be more
accurate to calculate actual overheads cost per unit each month end by
dividing the total number of all units actually produced during the month
into the actual overheads incurred.

REQUIRED:
Critically examine the production director’s suggestion.

QUESTION 3

(a) Market Gardener is planning its production for the next season, and he
has asked you as a Cost Accountant, to recommend the optimal mix of
vegetable production for the coming year. He has given you the following
data relating to the current year.

Details Potatoes Turnips Parsnips Carrots

Area (acres) 25 20 30 25
Yield per acre (tones) 10 8 9 12
Selling price per ton ($) 100 125 150 135
Variable costs per acre ($):
Fertilizers 30 25 45 40
Seeds 15 20 30 25
Pesticides 25 15 20 25
Fixed overhead per annum $54 000

The land that is being used for production of carrots and parsnips can be used for
either crop, but not for potatoes or turnips. The land being used for potatoes and
turnips can be used for either crop, but not for carrots or parsnips. In order to
provide an adequate market service the Market Gardner must produce at least
40 tonnes each of potatoes and turnips and 36 tonnes each of parsnips and
carrots annually.

REQUIRED:
(i) Prepare a statement showing profits for the current year.
(ii) Prepare a statement showing profits for the production mix that you would
recommend.

(b) Assume that the land could be cultivated in such a way that any of the above
crops could be produced and there was no market commitment.

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REQUIRED:
i) Advise the Market Gardner on which crop he should concentrate his
production.
ii) Calculate the profit if he were to do so.
iii) Calculate in dollars the break-even point sales.

QUESTION 4

(a) Standard costing systems were developed to meet the needs of a business
environment which is drastically different from that which exists today. The
usefulness of standards as standard costing variance analysis in a modern
business environment has been questioned and several writers have
predicted its demise.

REQUIRED:
Name three types of standard costs and give two (2) reasons which might lead to
the demise of standard costing system in the current business environment.

(b) The following information has been gathered for a certain Job by a company
in 2018:
$
Materials consumed 400 000
Direct labour 300 000
Factory overheads 240 000
Office and administrative expenses 94 000
Sales 1 240 800

The company has to quote for the Job to be undertaken in February 2019. It is
estimated that the Job will require material costing $30 000 and direct wages will
be $45 000.

REQUIRED:
(i) Determine the cost of the job.
(ii) Calculate the selling price if the company is to make a marginal profit of 25%.

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QUESTION 5

A product is manufactured by passing through three processes: A, B and C. In

process C a by-product is produced which is then transferred to Process D where
it is completed. The following data is for the first week of January:

Process:
A B C D
Normal loss of input (%) 5 10 5 10
Scrap value ($ per unit) 1.50 2.00 4.00 2.00
Estimated sales value of by-products - - 8.00 -
($ per unit)
Output units 5 760 5 100 4 370 -
Output of by-products (units) - - 510 450
Direct materials (6,000) units 12 000 - - -
Direct materials added in Process 5 000 9 000 4 000 220
Direct wages ($) 4 000 6 000 2 000 200
Direct expenses 800 1 680 2 260 151

Budgeted production overhead (based on direct wages) for the week is $12,200.

REQUIRED:
a) Prepare accounts for process A, B, C and D.
b) Prepare abnormal loss and abnormal gain accounts.

“End of Examination Question Paper”

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