Certified Accounting Technician Examination

Paper T4
Intermediate Level

Accounting for Costs

Thursday 4 June 2009

Time allowed: 2 hours

This paper is divided into two sections:

Section A – ALL 20 questions are compulsory and MUST
be attempted
Section B – ALL FOUR questions are compulsory and MUST
be attempted

Do NOT open this paper until instructed by the supervisor.

This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Section A – ALL 20 questions are compulsory and MUST be attempted

Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question in this section is worth 2 marks.

1 Consider the following statements relating to management information:

Statement 1: Management information should have some value otherwise it would not be worth the cost of collecting
and communicating it
Statement 2: Management information only needs to be accurate enough for its purpose

Are the statements TRUE or FALSE?

Statement 1 Statement 2
A True True
B True False
C False True
D False False

2 Which of the following is a cost centre manager?

A A person responsible for costs only
B A person responsible for revenue only
C A person responsible for costs and revenue only
D A person responsible for costs, revenue and investment

3 In a large business which of the following activities is most likely to be the responsibility of a trainee accounting
technician?
A Coding invoices
B Determining selling price strategy
C Interpreting cost variances
D Making capital investment decisions

4 What is a cost ledger control account?

A An account in the cost ledger to record financial accounting items
B An account in the financial ledger to record cost accounting items
C An account that summarises outstanding payables balances
D An account that summarises outstanding receivables balances

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5 Which line on the following graph represents the cost of a raw material where bulk discounts apply at intervals
on all purchases?

Total cost $
A
B
C
D

Quantity

A Line A
B Line B
C Line C
D Line D

6 15,000 units of a product are currently manufactured in a factory per period. Variable costs are $4·50 per unit and
fixed costs are $63,000 per period. If the capacity of the factory is increased to enable the manufacture of 20,000
units of product per period total costs would be:
Variable $88,000
Fixed $68,000

What would be the reduction in the total cost per unit if the capacity of the factory is increased as described?
A $0·80
B $0·90
C $1·05
D $1·15

7 Stores ledger accounts and/or bin cards may include details of:
1. Receipts and issues
2. Inventory quantity
3. Unit price
4. Inventory value

Which of the items would appear on the stores ledger account but not on the bin card?
A 3 only
B 4 only
C 1 and 2
D 3 and 4

3 [P.T.O.
8 The following data refers to a particular inventory item:
Receipts (units) Issues (units) Total cost ($)
Day 1 200 1,100
Day 3 140
Day 6 150 840
Day 7 140
The weighted average method is used to value inventory issues. A revised weighted average price is calculated after
each purchase.

At what cost price per unit (to two decimal places of $) will the issue on Day 7 be made?
A $5·54
B $5·56
C $5·57
D $5·60

9 The following statements relate to the use of different raw material pricing methods in a period of consistently rising
prices:
Statement 1: Production costs will be higher using Last-in First-out (LIFO) rather than First-in First-out (FIFO)
Statement 2: Raw material inventory values will be lower using Last-in First-out (LIFO) rather than weighted average

Which of the statements is/are true?

A Neither statement
B Statement 1 only
C Statement 2 only
D Both statements

10 In an interlocking accounting system what is the double-entry in the cost accounts to record the purchase of raw
materials on credit?
Debit Credit
A Cost ledger control Materials control
B Materials control Cost ledger control
C Materials control Payables
D Payables Materials control

11 Which of the following is a calculation of the minimum inventory control level (buffer inventory)?
A Re-order level minus average usage in average lead time
B Re-order level minus maximum usage in maximum lead time
C Re-order quantity minus maximum usage in maximum lead time
D Re-order quantity plus re-order level minus minimum usage in minimum lead time

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12 Holding costs are included in the Economic Order Quantity formula.

Which of the following are examples of holding costs?

1. Warehouse rent
2. Interest on inventory investment
3. Carriage inwards
4. Inventory theft
A 1 and 2 only
B 1 and 3
C 3 and 4
D 1, 2 and 4

13 The following are examples of labour costs incurred in production cost centre X in a factory:
1. Basic wages of machine operatives
2. Cost centre supervisor’s wages
3. Wages (including overtime premium) of cleaning staff

Which of the labour costs are direct product costs?

A 1 only
B 1 and 2 only
C 1 and 3 only
D 1, 2 and 3

14 A new fixed asset, costing $10,000, has a four year life with an estimated value at the end of its life of 20% of the
original investment amount. Two alternative depreciation methods are being considered for the asset:
(i) Reducing balance at 30% per annum
(ii) Machine hour utilisation based on:
Year 1 1,500 hours
Year 2 1,000 hours
Year 3 1,000 hours
Year 4 500 hours
The following statements relate to the above data:
Statement 1: The depreciation charge in Year 1 would be higher using the machine hour method
Statement 2: The depreciation charge in Year 3 would be lower using the reducing balance method

Are the statements TRUE or FALSE?

Statement 1 Statement 2
A True True
B True False
C False True
D False False

5 [P.T.O.
15 A company sold 10,000 units of its single product in a period during which finished goods inventory increased by
2,000 units.

Based on absorption costing, how would the profit in the period and the inventory value at the end of the period
compare with those calculated using marginal costing (MC)?
Profit Inventory value
A Higher than MC Higher than MC
B Higher than MC Lower than MC
C Lower than MC Higher than MC
D Lower than MC Lower than MC

16 The conversion costs in a process totalled $47,620 for a period. There was no opening work-in-progress. During the
period 9,000 units of product completed production and a further 1,000 units remained, 60% complete.

What was the conversion cost per unit (to 2 decimal places) in the period?
A $4·76
B $4·96
C $5·07
D $5·29

17 A single-product business has the following results for a period:

$
Sales revenue 268,000 (at $25 per unit)
Less: variable costs 139,360
––––––––
Contribution 128,640
Less: fixed costs 87,480
––––––––
Net profit 41,160
––––––––

What is the break-even point in units?

A 3,499
B 7,290
C 8,645
D 9,074

18 The following forecasts relate to a single-product business for a period:

Variable costs $38,640
Fixed costs $39,975
Sales revenue $84,000
Sales units 6,000

What sales revenue is required to achieve a profit of $12,000 in the period?

A $74,030
B $90,615
C $96,250
D $112,990

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19 An investment project has net present values as follows:
Discount rate 10% per annum, net present value $24,760 positive
Discount rate 20% per annum, net present value $16,110 negative

What is the internal rate of return?

A 10·6%
B 12·9%
C 16·1%
D 28·6%

20 A business is considering a project requiring an investment of $200,000 now and with estimated cash inflows of
$23,000 per annum in perpetuity. The first cash inflow would be received in one year’s time. The cost of capital is
10% per annum.

What is the net present value of the investment?

A $2,300
B $3,000
C $20,000
D $30,000

(40 marks)

7 [P.T.O.
Section B – ALL FOUR questions are compulsory and MUST be attempted

1 Company XYZ produces two components (C1 and C2) and is planning the allocation of its available resources for the
next period.
75 units of component C1 and 60 units of component C2 are required to be produced but machine hour capacity is
restricted to a total of 300 hours. Any deficit of components produced in-house can be made up by the purchase of
any quantity of either component from an outside supplier. The objective of Company XYZ is to satisfy the requirement
for components at minimum total cost.
The following information is available concerning each component:
Component
C1 C2
Costs ($ per unit):
Direct materials 6·20 8·70
Direct labour 5·10 7·50
Variable production overheads 1·20 1·30
Fixed production overheads 4·80 6·40
–––––– ––––––
17·30 23·90
Machine hours (per unit) 2·0 3·0
Price from outside supplier ($ per unit) 18·50 25·90

Required:
For the next period:
(a) Calculate the variable costs of producing each component in-house. (1 mark)

(b) Calculate the extra costs of buying-in each component. (2 marks)

(c) Determine which component should have production priority. Show workings clearly and justify your
conclusion. (5 marks)

(d) Calculate the number of units of each component that should be manufactured by Company XYZ. (3 marks)

(11 marks)

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2 A company refines crude oil into two grades (Grade A and Grade B) in a single process. The normal loss in refining
is 2% of input and process costs are apportioned to the joint products on the basis of volume of output. The following
information is provided for the period just ended:
Input of crude oil 800,000 litres at a cost of $130,000
Conversion costs $105,200
Output of Grade A 468,000 litres, sold for $280,800
Output of Grade B 312,000 litres, sold for $87,360
There was no opening or closing inventory in the period and losses of raw material have no value.

Required:
For the period just ended:
(a) Prepare the process account, showing both litres and value. (11 marks)

(b) Prepare a statement showing the sales, joint costs and gross profit/(loss) of each product and in total.
(5 marks)

(16 marks)

3 (a) Define the term ‘cost unit’. (2 marks)

(b) Suggest a suitable cost unit for each of the following:

(i) a manufacturer of canned food products; and
(ii) a house builder. (3 marks)

(c) A company manufactures to customer order and operates a job costing system. Job X3 remained incomplete at
the end of Month 4 with the following production costs incurred:
Prime costs $4,360
Overheads $2,890
The company worked on two jobs in Month 5. Prime costs incurred were:
Job X3 Job X4
$ $
Direct materials issued from stores 1,660 8,240
Direct materials returned to stores Nil (470)
Direct materials transferred between the two jobs (180) 180
Direct labour 720 3,690
Direct labour is paid at a rate of $9.00 per hour. Production overheads are absorbed at a rate of $17·50 per
direct labour hour. 10% of the total production cost of each job is added in order to recover general administration
costs. Job X3 was completed in Month 5 and the customer paid the agreed sum of $13,400.

Required:
(i) Prepare a profit statement for Job X3. (8 marks)
(ii) Calculate the value of work-in-progress for Job X4 at the end of Month 5. (4 marks)

(17 marks)

9 [P.T.O.
4 There are two production cost centres (P1 and P2) and one service cost centre (S1) in a factory. Overheads are
absorbed in each production cost centre on the basis of machine hours.
The following budgeted information is available for a period:
1. Overhead costs allocated and apportioned:
Production cost centre P1 $65,800
Production cost centre P2 $85,500
Service cost centre S1 $28,000
2. Service cost centre overheads are re-apportioned to the production cost centres as follows:
Production cost centre P1 40%
Production cost centre P2 60%
3. Machine hours in cost centre P1 are 5,500.
4. Overhead absorption rate in cost centre P2 is $16·50 per machine hour.
The following actual information is available for the same period:
1. Overhead costs incurred in cost centre P1 (including the re-apportionment of cost centre S1 costs) totalled
$75,840.
2. Machine hours worked:
Production cost centre P1 5,340
Production cost centre P2 6,450
3. Overheads were over-absorbed by $3,550 in cost centre P2.

Required:
(a) For production cost centre P1, calculate the period’s:
(i) budgeted production overhead absorption rate; and (4 marks)
(ii) over or under absorption of overhead. (4 marks)

(b) For production cost centre P2, calculate the period’s:

(i) budgeted machine hours; and (4 marks)
(ii) actual overhead incurred. (4 marks)

(16 marks)

End of Question Paper

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