The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

Certificate in Accounting and Finance

December 14, 2020
3 hours – 100 marks
Additional reading time - 15 minutes

Cost And Management Accounting

Instructions to examinees:
(i) Answer all seven questions.
(ii) Answer in black pen only.

Question # 1:
Adnan Limited (AL) is a retailer and sells product Zafran (Z) at a price of Rs. 3,400 per unit. The
product is purchased from a supplier in Islamabad at a cost of Rs. 2,400 per unit plus
transportation charges amounting to Rs. 6,000 for each delivery. The records over a 5-year period
show that monthly sales ranged between 900 units to 1,200 units, as shown below:
Units Probability
900 0.30
1000 0.45
1100 0.20
1200 0.05

The following further information is available:

(i) The supplier requires 30 days to fulfil an order.
(ii) The costs of the ordering department are as follows:
 Variable costs - Rs. 3,000 per order
 Fixed costs – Rs. 480,000 per annum
Purchases of Z constitute 5% of the total purchases of AL.
(iii) The holding costs associated with Z are as follows:
 Warehouse rent Rs. 360,000 per annum. 2% of the warehouse space is required to
store 1,000 units of Z.
 Cost of Insurance @ 1.0% of the cost of goods stored in the warehouse, per annum.
(iv) AL places its surplus funds in an account which earns interest @ 8% per annum on a daily
basis.

Required:
Determine the level of inventory at which it would be most profitable for AL to reorder the product
Z. (Marks: 15)

Question # 2:
Sigma Garments (SG) is engaged in selling ready made garments. These garments are
processed through three production departments. SG's production facility also has two service
departments. Following information relates to budgeted production overheads for the year ending
December 31, 2019:
Expenses Rs. million
Depreciation (building) 40.00
Depreciation (P&M) 18.00
Indirect labor 54.00
Insurance (building) 22.00
Power 96.00
General lighting 14.00
Repairs (P&M) 36.00

Other relevant budgeted information for 2019 is as follows:

Cutting Stitching Finishing Maintenance Canteen

Direct material [Rs. million] 94.00 102.00 50.00 - -
Direct labor [Rs. million]
[Rs. 800 per hour] 45.00 32.00 24.00 - -
Indirect labor [Rs. million] 11.00 12.00 13.00 10.00 8.00
Area covered (sq. yards) 1500 1200 800 500 400
Cost of P&M [Rs. million] 240 360 120 - -
KWH consumption 10000 25000 10000 - -
Machine hours 24000 36000 12000 - -
Light points (no.) 20 20 15 5 10

Machine
Basis of OAR - -
Labor hours hours Labor hours

Service departments provides support as follows:

Cutting Stitching Finishing Maintenance Canteen

Maintenance 25% 45% 30% - -
Canteen 30% 30% 35% 5% -

Required:

Calculate OAR for the year 2019 for each production department. (Marks: 15)

Question # 3:

Hazard ltd. manufacturer of industrial valves provides the following information for the year ended
31st march 2012.

Particulars Per unit Total

Sales (15,000 valves) (i) 25 375,000
Production Cost
Variable 15 225,000
Fixed 3 45,000
Total (ii) 18 270,000
Gross profit 7 105,000
Administration, selling and distribution overheads (fixed ) 32,000
Net profit 73,000

The actual sales, production and stocks for the year 31st March 2013 are as under:
 Quarter-1 Quarter-2
Opening stock - 2,000
Production 6,000 4,000
Sales 4,000 5,000
Closing stock 2,000 1,000
From the first day of Quarter -1 the variable & Fixed Production cost increased by 10%. Budgeted
production for the year ended 31st march 2013 is 15000 units that is equivalent to 2012 budget.

Required:

Prepare quarterly statements of profitability on the basis of absorption costing and marginal
costing for the year ending 31st March 2013
(Marks: 16)

Question # 4:
The following information relates to week's performance of three employees:
X Y Z
units produced 320 552 136
Hours per unit 1 0.5 1.5
Basic hourly rate 160 200 140
Hours worked as direct worker 96 108 60
Hours worked as indirect worker 24

Other information is as following:

a) The normal working hours of the week are 84.

b) For the first 6 hours, overtime is paid @ 50% above normal rate. Any further overtime is
paid @ double the normal rate.
c) Bonus is paid @ 80% of normal rate of time saved.

Required:

Determine total wages earned by each employee in a week. (Marks: 10)

Question # 5

Ali Chemicals (AC) produces a chemical that is manufacture in two different processes. Following
information pertains to process B for the month of November 2020

Liter Rs. in
‘000’
Opening work in process ( 90% to 10,000 4,000
conversion )
Cost for the month:
Received from Process-A 45,000 27,00
0
Material added in Process-B 25,000 20,00
0
Conversion Cost incurred in Process-B - 25,00
0
Finished goods transferred out 70,000 -
Closing work in process ( 60% to 8,000
conversion )
 In Process B, material is added at the start of the process and conversion costs are
incurred evenly throughout the process. Process losses are determined on inspection
which is carried out on 70% completion of the process. Process loss is estimated at 5% of
the inspected units and is sold for Rs.140 per liter.
AC uses FIFO method for inventory valuation.
Required:
(a) Work in process- B account (13 marks)
(b) Abnormal Loss/gain account (3 marks)

Question # 6

The trial balance of the Alpha Company shows the following balances as on November 01,
2020:
R Rs.
s
Cash 51,600
Accounts receivable 95,480
Allowance for doubtful debt 5,650
Finished goods 157,400
Work in process 170,800
Materials 89,760
Building 240,000
Accumulated depreciation – building 96,000
Equipment 474,480
Accumulated depreciation – 230,42
equipment 0
Accounts payable 108,54
0
Accrued payroll 13,200
Share capital 160,00
0
Retained earnings 665,71
0

1,279,520 1,279,520

During the month of November, following transactions took place:

Rs
.
(a) Materials purchased on account 80,000
(b) Direct materials issued 130,000
(c) Total payroll (direct labour) 160,000
(d) Wages paid 150,000
(e) Accounts payable paid 270,000
(f) Depreciation to be provided for November at the rate of 2%
per annum on
Building; 10% per annum on equipment ?
(g) Factory overhead applied to production at 60% of direct ?
labour cost
(h) Work in process, November 30 150,000
(i) Cost of goods sold 410,000
(j) Sales on account 570,000
Required:

Prepare journal entries for the above transactions. (Marks 13)

Question # 7

The following information relates to SD Limited

Units to be produced 12,000

Each Batch [ units] 100

(i) Cost of First Batch is as under

Direct material (1200Kg @70 per kg) ** 84,000

Direct Labour(200 hours @ 265 per hour) 66,250

Production overheads(200 hours @ 135 per hour) 33,750

** existing material cost is inclusive of 8% loss

(ii) Due to learning curve the first second third & fourth batch would require

200 hours ,180 hours 174 hours & 168 Hours

(iii) Learning curve effect would continue until 75 batches

(iv) After completion of 24 batches the material loss would reduce from 8% to 5%

Required : Determine Cost of production of all units

(Marks 15)

THE END