T I C A P: HE Nstitute of Hartered Ccountants of Akistan

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
Intermediate Examinations Autumn 2003
September 06, 2003
COST ACCOUNTING (MARKS 100)

Module D (3 hours)
Q.1 Why should semi variable expenses be separated into fixed and variable elements?
What methods are available for separating semi variable expenses? 07
Q.2 How Cash Budget assists management in making more effective use of money?
Name two methods used for the preparation of a cash budget. 09
Q.3 The estimated overheads likely to be incurred relating to a cost center with two major
machines installed are as under:
Rupees
Supervision 8,000
Indirect employees, wages 10,000
Earned leave 5,000
Maintenance cost 15,000
Power 20,000
Depreciation 5,000
Rent of building 2,500
65,000
Details of various allocations of the cost centers are as under
Machine-1 Machine-2 Total
Running hours 5,000 1,000 6,000
1) Supervision cost Rs 4,000 4,000 8,000

2) Capital cost of machine Rs 20,000 5,000 25,000
3) Indirect employees No 8 2 10
4) Total employees No 20 5 25
5) Maintenance hours 600 120 720
6) Kilowatt hours 100,000 20,000 120,000
7) Floor Space Sq. ft 5,000 5,000 10,000
Required: Calculate machine hour rate for each machine. 10
Q.4 Following data pertains to a worker of a manufacturing industry.

Actual production 400 units
Working hours in a week 48 hrs
Guaranteed rate per hour Rs.10
Estimated time to produce one unit 8 minutes
As an incentive the management has agreed to increase the

time allowed per unit by 20%
(02)
Required:
Calculate the gross wages of the worker according to:

a) Piece work with a guaranteed weekly wages
b) Under Rowan premium bonus
c) Under Hasley premium bonus 50% to worker 09
Q.5 Tata Cools manufactures a range of products including Air conditioners which pass
through three processes before transfer to finished goods store. Production department
for the current month has given the following production data.
PROCESS
1 2 3 Total
Basic Raw Material (10,000 units) Rs 6,000 6,000

Direct material – addition Rs 8,500 9,500 5,500 23,500
Direct wages Rs 4,000 6,000 12,000 22,000
Direct expenses Rs 1,200 930 1,340 3,470
Production overheads (to be allocated
on the basis of direct wages) Rs 16,500
Output Units 9,200 8,700 7,900

Normal loss in process of input % 10 5 10
Scrap value of each lost unit Rs 0.20 0.50 1.00
There was no stock at start or at the end in any process.
You are required to prepare the following accounts
a) Process 1 04
b) Process 2 04
c) Process 3 04
d) Abnormal Loss 04
e) Abnormal Gain 04
Q.6 The Parrot Company sold 150,000 units @ Rs. 30 each, Variable cost is Rs. 20
(Manufacturing Rs. 15 & Marketing Rs. 5), Fixed Cost is Rs. 1,200,000 annually
which occurs evenly throughout the year (Manufacturing Rs. 800,000 & Marketing
Rs. 400,000)
Required
i) Breakeven point in units

ii) Breakeven point in Rupees
iii) Number of units to be sold to earn profit before tax of Rs. 200,000
iv) Number of units to be sold to earn after tax profit of Rs. 100,000 if tax rate
is 25%
v) The breakeven point in units if selling price is increased by Rs. 3 and
variable cost by Rs. 2 per unit 10
(03)
Q.7 A manufacturing concern is currently buying a component used in its finished product
from a local supplier @ Rs. 2,000. The company has been informed that plant to
produce this component is available and can be installed at space available with the
company. Two alternative proposals are under consideration:
a) Install a semi-automatic machine in which case fixed cost will be

Rs. 5,000,000 and variable cost Rs. 1,500 per unit.
b) Install an automatic machine in which case fixed cost will be Rs. 10,000,000
and variable cost Rs.1,200 per unit.
Note (Depreciation and interest costs are included in fixed cost).
Required:
(i) At what level of output it is justified to install any of the above two
machines.
(ii) If the annual requirement of the component is 15,000 units, which machine
would you advise to install.
(iii) At what level of output would you advise the company to install automatic
machine instead of semi-automatic machine. 15
Q.8 Following information pertains to Dilber Associates:
Normal capacity of a plant is 20,000 units per month or 240,000 units a year.
Variable costs per unit are:

Direct material Rs. 3.00
Direct labour Rs. 2.25
Variable FOH Rs. 0.75
Total Rs. 6.00
Fixed overheads are Rs. 300,000 per year or Rs.1.25 per unit at normal capacity.
Company is using ‘units of product’ as basis for applying overheads. Fixed marketing
and administrative expenses are Rs. 60,000 per year and variable marketing expenses
are Rs. 3,400, Rs. 3,600, Rs. 4,000 and Rs. 3,000 for the first, second, third and fourth
month respectively.
Actual and applied variable overheads are the same. Likewise no material or labour
variance exists. There is no work in process. Standard costs are assigned to finished
goods only.
The sale price per unit is Rs. 10 and actual production, sale and finished goods
inventories in units are:
MONTHS
First Second Third Fourth
Units in beginning inventory - - 3,000 1,000

Units produced 17,500 21,000 19,000 20,000
Units sold 17,500 18,000 21,000 16,500
Units in ending inventory - 3,000 1,000 4,500
Required: From the above information prepare income statement through Absorption
Costing and Direct Costing methods. 20
(THE END)

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Intermediate Examinations Autumn 2003

September 06, 2003

COST ACCOUNTING (MARKS 100)

Running hours 5,000 1,000 6,000

1) Supervision cost Rs 4,000 4,000 8,000

Required: Calculate machine hour rate for each machine. 10

Q.4 Following data pertains to a worker of a manufacturing industry.

As an incentive the management has agreed to increase the

Calculate the gross wages of the worker according to:

Basic Raw Material (10,000 units) Rs 6,000 6,000

Output Units 9,200 8,700 7,900

There was no stock at start or at the end in any process.

You are required to prepare the following accounts

i) Breakeven point in units

a) Install a semi-automatic machine in which case fixed cost will be

Note (Depreciation and interest costs are included in fixed cost).

Q.8 Following information pertains to Dilber Associates:

Variable costs per unit are:

Units in beginning inventory - - 3,000 1,000

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