Certificate in Accounting and Finance Stage Examination

(Assessment) Nov 17 ,2023

1 hour and 10 minutes – 34 marks
Additional Reading Time – 5 minutes

Cost & Management Accounting

Instructions to examinees:
(i) Answer in black pen only.
(ii) Attempt each part of the question on fresh page.
Question-1
The Telephone Co (T Co) is a company specializing in the provision of telephone systems for commercial clients. There
are two parts of the business:
• Installing telephone system in the business, either first time installations or replacement installations
• Supporting the telephone systems with annually renewable maintenance contracts, T Co has been approached by a
potential customer, Push Co, who wants to install a telephone system in the new offices it is opening. Whilst the
job is not a particularly large one, T Co is hopeful of future business in the form of replacement systems and support
Contracts for Push Co. T Co is therefore keen to quote a competitive price for the job. The following information
should be considered:
1. One of the company’s salesmen has already been to visit the push Co., to give them demonstration of the new
system, together with a complementary lunch, the costs of which totaled Rs. 400.
2. The installation is expected to take one week to complete and would require three engineers, each of whom is
currently paid a monthly salary of Rs. 4,000. The engineers have just had their annually renewable contract
with T Co. One of the three engineers has spare capacity to complete the work, But the other two would have
to be moved from contact X in order to complete this one. Contact X generates a contribution of Rs. 5 per
engineer hour. There are no other engineers available to continue the product X if these two engineers are
taken off the job, it would mean that T Co. would miss its contractual completion deadline on contact X by
one week. As a result, T Co. would have to pay a one-off penalty of Rs. 500.Since there is no other work
scheduled for those engineers in one’s week time, it will not be a problem for them to complete contract X at
this point.
3. T Co’s technical advisor would also need to dedicate 8 hours of his time to the job. He is working at full
capacity, so he would have to work overtime in order to do this. He is paid an hourly rate of Rs. 40 and is paid
all overtime at a premium of 50% above his usual hourly rate.
4. Two visits would need to be made by the site inspector to approve the completed work. He is an independent
contractor who is not employed by T Co, and charges Push Co directly for the work. His cost is Rs. 200 for
each visit made.
5. T Company’s system trainer would need to spend one day at Push Company delivering training. He is currently
paid a monthly salary of Rs. 1,500 but also receives commission of Rs. 125 for each day spent delivering
training at a client’s site.
6. 120 telephone handsets would need to be supplied push Co. The current cost of these is Rs. 18.20 each,
although T Co already has 80 handsets in inventory. These were bought at the price of Rs. 16.80 each. The
handsets are the most popular model on the market and frequently requested by T Co.’s customers.
7. Push Co would also need a computerized control system called swipe 2. The current market price of swipe 2
is Rs. 10,800, although T Co has an older version of the system. Swipe 1 is available in inventory, and it could
be modified at cost of Rs. 4,600. T Co paid Rs. 5,400 for swipe 1 when it ordered it in error two months ago
and has no other use for it. T Co paid Rs. 5,400 for swipe 1 when it ordered in error two months ago and has
no other use for it. The current market price of swipe 1 is Rs. 5,450, although if T Co tried to sell the one they
have, it would be deemed to be used and therefore only worth Rs. 3,000.
8. 1,000 meters of cable would be required to wire up the system. The cable is used frequently by T Co, and it
has 200 meters in inventory, which costs Rs. 1.20 per meter. The current market price for the cable is Rs. 1.30
per meter.
9. You should assume that there are four weeks in each month and that the standard working week is 40 hours
week.
Required:
Prepare a cost statement using relevant costing principles showing the minimum cost that T Co should charge for the
contract. Make Detailed notes showing how each cost have been arrived at and EXPLAINING why each of the costs
above has been included or excluded from your cost statement. (14)
 CMA Page 2 of 2

Question-2
What do you understand by under/over absorbed production overheads? (02)

Question-3
What are the Advantages and Disadvantages of Activity based costing (04)

Question-4
Baby Dresser Limited is a manufacturing company operating three production departments. Shown below are next
year's budgeted manufacturing costs per unit for each of the three products manufactured by the company:
Shirt Pant Jacket
Rs. Rs. Rs. Rs. Rs. Rs
Per unit Per unit Per unit Per unit Per unit Per unit.
Direct materials 24.0 36.0 48.0
Direct Wages:
Department A 10.0 8.0 14.0
Department B 12.0 15.0 21.0
Department C 6.0 28.0 3.0 26.0 2.0 37.0
Production overheads:
Department A 11.2 8.0 4.8
Department B 6.0 7.5 10.5
Department C 2.5 19.7 2.5 18.0 2.5 17.8
Total budgeted manufacturing cost per unit 71.7 80.0 102.8

Prime costs are variable, production overhead contains both fixed and variable elements.
The company operates a full absorption costing system and next year's budgeted overhead absorption rates, based upon
next year's budgeted overheads and activity are:

Department A Department B Department C

Rs. 1.60 per machine hour 50% of direct wages Rs. 2.50 per unit.

Next year's budgeted total direct wages for Department B, analyzed by product are:

Shirt Pant Jacket

Rs. 158,400 Rs. 412,500 Rs. 147,000

Required:
Calculate next year's total budgeted overheads for each of the three departments in Baby Dress Ltd. (14)

(Good Luck)