Question Tag: Cost Allocation

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  • 14 Marks

ICMA – Nov 2024 – L1 – Q4a – Apportionment of Overheads

Apportion overhead costs across departments based on the most appropriate bases.

: Apportionment of Overheads
The following expenses were estimated for the month of June 2024:

Item GH¢
Electricity 80,000
Rent 18,000
Property rate 6,000
Insurance premium (office equipment) 15,000
Internet and communication 25,000
Indirect wages 60,000

There are three departments: A, B, and C. The following additional information has been provided:

Department Area occupied (sq. metres) Number of customers Number of employees Value of office equipment (GH¢)
A 300 700 120 50,000
B 450 600 150 40,000
C 250 500 130 60,000

Required:
Apportion the above overheads using the most appropriate base and determine the total overhead for each department.

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  • 30 Marks

PM – May 2015 – L2 – SA – Q1 – Cost-Volume-Profit (CVP) Analysis

Analyze Tadefo Limited's activity-based costing, discuss budgeting weaknesses, and describe the advantages of ABB and ZBB.

TADEFO LIMITED is a manufacturing company which produces and assembles car components. The company has two main production departments: Machining and Assembling. Each of the two departmental managers is responsible for producing annual budgets based on targets set by the management. From last year’s budget, TADEFO Limited hoped to turn an expected 10 percent rise in total revenue into a 20 percent increase in the company’s profits.

The following budgeted information relates to TADEFO Limited for the forthcoming period:

Products Information:

Products ACQ BEZ CFJ
Sales and production (units) 30,000 50,000 40,000
Selling price (per unit) (N) 73 45 95
Prime cost (per unit) (N) 65 32 84
Machine Dept. (hrs per unit) 4 2 5
Assembly Dept. (hrs per unit) 2 7 3

Overheads Re-Analyzed into Cost Pools:

Cost Pool Amount (N’000) Cost Driver Quantity for the period
Machine services 359 Machine hours 425,000
Assembly services 328 Direct labour hours 532,000
Set-up costs 36 Set-ups 720
Order processing 165 Customer orders 34,000
Purchasing 88 Supplier’s orders 12,400
Total Overheads 976

You have also been provided with the following estimates for the period:

ACQ BEZ CFJ
Number of set-ups 220 130 210
Customer orders 18,000 10,000 10,000
Suppliers’ orders 5,200 3,600 4,200

Required: a. Prepare and present a profit statement using activity-based costing. (14 Marks)
b. What would you consider to be the weaknesses of an incremental budgeting system for a company such as TADEFO Limited? (5 Marks)
c. Describe Activity-Based Budgeting (ABB) and comment on the advantages of its use by TADEFO Limited. (5 Marks)
d. Explain how the use of Zero-Based Budgeting (ZBB) can motivate employees. (3 Marks)
e. “Encouraging employee participation in budget setting is beneficial” Discuss. (3 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q25 – Accounting from Incomplete Records

Calculating the portion of joint costs attributable to a department.

X and Y are two departments that share 50% of all joint costs equally and the balance in the ratio of 2:1, respectively. If a sum of N300,000 is incurred jointly, what will be the portion attributable to X?

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  • 1 Marks

FA – May 2012 – L1 – SA – Q24 – Accounting for Inventories in Accordance with IAS 2

Identifying the most appropriate basis for apportioning inventory holding costs among departments.

The most appropriate basis for apportioning inventory holding costs among departments is to use the value of:

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  • 10 Marks

QTB – May 2016 – L1 – SB – Q4b – Mathematics

This question covers estimating the value of a house with compound growth and determining a feasible tableau using the Least Cost Method in a transportation problem.

i. A house built in Ikoyi increased in value by 8% in year 1, 25% in year 2, 35% in year 3, 43% in year 4, and 22% in year 5.

Required:
If the house cost N10,000,000 to build, estimate its value at the end of 5 years.
(3 marks)

ii. Calculate the average growth rate over the 5-year period.
(3 marks)

iii. A company’s Demand/Supply situations together with unit transportation costs are as shown below:

Supply Factory A Factory B Factory C Demand
400 3 6 7 400
550 7 5 3 550
500 5 4 6 500
700 3 2 4 700
Total 2150

Required:
Identify the initial feasible tableau using the Least Cost Method.

 

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  • 15 Marks

MI – May 2022 – L1 – SB – Q2b – Costing Methods

Prepare accounts for two construction contracts using a columnar format.

Wazobia is a construction company currently undertaking two separate contracts. From the following information relating to the just-concluded financial year and other data extracted from the records of the company, you are required to prepare accounts for the two contracts using a columnar format:

Contract WXYZ002 Contract WXYZ003
Contract Price ₦5,000,000 ₦3,500,000
Material Purchased ₦1,650,000 ₦950,000
Plant & Machinery Transferred to Site ₦4,500,000 ₦3,000,000
Wages Paid ₦1,460,000 ₦1,200,000
Other Expenses ₦900,000 ₦460,000
Wages Accrued ₦140,000 ₦100,000
Value of Work Certified ₦2,950,000 ₦1,800,000
Cost of Work Not Certified ₦1,600,000 ₦1,450,000
Plant & Machinery Written Down ₦3,600,000 ₦2,400,000
Material on Site C/F ₦850,000 ₦100,000

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  • 20 Marks

PM – Mar/Jul 2020 – L2 – Q3 – Activity-Based Costing vs. Traditional Costing for Sedeco Nigeria

Calculation of unit costs for three products using traditional and activity-based costing approaches.

Sedeco Nigeria Limited manufactures and sells three products, Alpha, Beta, and Gamma. For some time now, the company has been concerned about its cost allocation system and has been searching for a more efficient way of cost allocation. The company recently employed a management accountant who informed the management that activity-based costing is a more efficient cost allocation system, leading to improvements in cost accuracy and reduction.

The management accountant discovered that the company has direct materials, direct labor, and five indirect cost pools which represent the five activity areas. The prior product costing system uses the two direct cost categories and a single indirect cost pool where overheads are allocated using direct labor hours. The following information is provided for the next period:

Direct labor is paid at N100 per hour. Overhead costs in the period are expected to be as follows:

Also, the company is considering the pricing of the three products because sales prices have remained uncertain as shown in the table below:

Required:
a. Calculate the unit costs of each product using:
(i) Prior product costing approach (traditional cost)
(ii) The Activity-Based Costing method (ABC). (10 Marks)

b. Compute the expected sales prices for the three products and the profit or loss that will arise from the implementation of the ABC costing approach and the traditional costing method. (8 Marks)

c. State reasons why the activity-based costing approach may be preferred to the traditional absorption costing approach in a modern manufacturing environment. (2 Marks)

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  • 1 Marks

MI – May 2021 – L1 – SA – Q3 – Costing Methods

Identify the definition of overhead apportionment.

Overhead apportionment is a process of:

A. Charging costs to a number of cost centres or units
B. Direct allocation of costs to cost centres or cost units
C. Accounting for some portion of costs and carrying forward the balance
D. Sharing costs into direct and indirect elements
E. Differentiating between variable and fixed costs

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  • 1 Marks

MI – Nov 2023 – L1 – SA – Q9 – Costing Methods

Identifying activities that are part of Activity-Based Costing (ABC).

Activities such as customer service and distribution, material handling, and set-ups are part of:
A. Standard costing
B. Marginal costing
C. Contract costing
D. Activity-based costing
E. Job costing

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  • 1 Marks

MI – May 2023 – L1 – SA – Q5 – Cost Classifications

This question asks for the term used to describe assigning indirect costs to cost centres.

Assigning indirect costs to cost centres is known as:
A. Cost allocation
B. Sales tracing
C. Sales allocation
D. Cost tracing
E. Allotment

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  • 14 Marks

ICMA – Nov 2024 – L1 – Q4a – Apportionment of Overheads

Apportion overhead costs across departments based on the most appropriate bases.

: Apportionment of Overheads
The following expenses were estimated for the month of June 2024:

Item GH¢
Electricity 80,000
Rent 18,000
Property rate 6,000
Insurance premium (office equipment) 15,000
Internet and communication 25,000
Indirect wages 60,000

There are three departments: A, B, and C. The following additional information has been provided:

Department Area occupied (sq. metres) Number of customers Number of employees Value of office equipment (GH¢)
A 300 700 120 50,000
B 450 600 150 40,000
C 250 500 130 60,000

Required:
Apportion the above overheads using the most appropriate base and determine the total overhead for each department.

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  • 30 Marks

PM – May 2015 – L2 – SA – Q1 – Cost-Volume-Profit (CVP) Analysis

Analyze Tadefo Limited's activity-based costing, discuss budgeting weaknesses, and describe the advantages of ABB and ZBB.

TADEFO LIMITED is a manufacturing company which produces and assembles car components. The company has two main production departments: Machining and Assembling. Each of the two departmental managers is responsible for producing annual budgets based on targets set by the management. From last year’s budget, TADEFO Limited hoped to turn an expected 10 percent rise in total revenue into a 20 percent increase in the company’s profits.

The following budgeted information relates to TADEFO Limited for the forthcoming period:

Products Information:

Products ACQ BEZ CFJ
Sales and production (units) 30,000 50,000 40,000
Selling price (per unit) (N) 73 45 95
Prime cost (per unit) (N) 65 32 84
Machine Dept. (hrs per unit) 4 2 5
Assembly Dept. (hrs per unit) 2 7 3

Overheads Re-Analyzed into Cost Pools:

Cost Pool Amount (N’000) Cost Driver Quantity for the period
Machine services 359 Machine hours 425,000
Assembly services 328 Direct labour hours 532,000
Set-up costs 36 Set-ups 720
Order processing 165 Customer orders 34,000
Purchasing 88 Supplier’s orders 12,400
Total Overheads 976

You have also been provided with the following estimates for the period:

ACQ BEZ CFJ
Number of set-ups 220 130 210
Customer orders 18,000 10,000 10,000
Suppliers’ orders 5,200 3,600 4,200

Required: a. Prepare and present a profit statement using activity-based costing. (14 Marks)
b. What would you consider to be the weaknesses of an incremental budgeting system for a company such as TADEFO Limited? (5 Marks)
c. Describe Activity-Based Budgeting (ABB) and comment on the advantages of its use by TADEFO Limited. (5 Marks)
d. Explain how the use of Zero-Based Budgeting (ZBB) can motivate employees. (3 Marks)
e. “Encouraging employee participation in budget setting is beneficial” Discuss. (3 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q25 – Accounting from Incomplete Records

Calculating the portion of joint costs attributable to a department.

X and Y are two departments that share 50% of all joint costs equally and the balance in the ratio of 2:1, respectively. If a sum of N300,000 is incurred jointly, what will be the portion attributable to X?

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  • 1 Marks

FA – May 2012 – L1 – SA – Q24 – Accounting for Inventories in Accordance with IAS 2

Identifying the most appropriate basis for apportioning inventory holding costs among departments.

The most appropriate basis for apportioning inventory holding costs among departments is to use the value of:

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  • 10 Marks

QTB – May 2016 – L1 – SB – Q4b – Mathematics

This question covers estimating the value of a house with compound growth and determining a feasible tableau using the Least Cost Method in a transportation problem.

i. A house built in Ikoyi increased in value by 8% in year 1, 25% in year 2, 35% in year 3, 43% in year 4, and 22% in year 5.

Required:
If the house cost N10,000,000 to build, estimate its value at the end of 5 years.
(3 marks)

ii. Calculate the average growth rate over the 5-year period.
(3 marks)

iii. A company’s Demand/Supply situations together with unit transportation costs are as shown below:

Supply Factory A Factory B Factory C Demand
400 3 6 7 400
550 7 5 3 550
500 5 4 6 500
700 3 2 4 700
Total 2150

Required:
Identify the initial feasible tableau using the Least Cost Method.

 

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  • 15 Marks

MI – May 2022 – L1 – SB – Q2b – Costing Methods

Prepare accounts for two construction contracts using a columnar format.

Wazobia is a construction company currently undertaking two separate contracts. From the following information relating to the just-concluded financial year and other data extracted from the records of the company, you are required to prepare accounts for the two contracts using a columnar format:

Contract WXYZ002 Contract WXYZ003
Contract Price ₦5,000,000 ₦3,500,000
Material Purchased ₦1,650,000 ₦950,000
Plant & Machinery Transferred to Site ₦4,500,000 ₦3,000,000
Wages Paid ₦1,460,000 ₦1,200,000
Other Expenses ₦900,000 ₦460,000
Wages Accrued ₦140,000 ₦100,000
Value of Work Certified ₦2,950,000 ₦1,800,000
Cost of Work Not Certified ₦1,600,000 ₦1,450,000
Plant & Machinery Written Down ₦3,600,000 ₦2,400,000
Material on Site C/F ₦850,000 ₦100,000

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  • 20 Marks

PM – Mar/Jul 2020 – L2 – Q3 – Activity-Based Costing vs. Traditional Costing for Sedeco Nigeria

Calculation of unit costs for three products using traditional and activity-based costing approaches.

Sedeco Nigeria Limited manufactures and sells three products, Alpha, Beta, and Gamma. For some time now, the company has been concerned about its cost allocation system and has been searching for a more efficient way of cost allocation. The company recently employed a management accountant who informed the management that activity-based costing is a more efficient cost allocation system, leading to improvements in cost accuracy and reduction.

The management accountant discovered that the company has direct materials, direct labor, and five indirect cost pools which represent the five activity areas. The prior product costing system uses the two direct cost categories and a single indirect cost pool where overheads are allocated using direct labor hours. The following information is provided for the next period:

Direct labor is paid at N100 per hour. Overhead costs in the period are expected to be as follows:

Also, the company is considering the pricing of the three products because sales prices have remained uncertain as shown in the table below:

Required:
a. Calculate the unit costs of each product using:
(i) Prior product costing approach (traditional cost)
(ii) The Activity-Based Costing method (ABC). (10 Marks)

b. Compute the expected sales prices for the three products and the profit or loss that will arise from the implementation of the ABC costing approach and the traditional costing method. (8 Marks)

c. State reasons why the activity-based costing approach may be preferred to the traditional absorption costing approach in a modern manufacturing environment. (2 Marks)

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  • 1 Marks

MI – May 2021 – L1 – SA – Q3 – Costing Methods

Identify the definition of overhead apportionment.

Overhead apportionment is a process of:

A. Charging costs to a number of cost centres or units
B. Direct allocation of costs to cost centres or cost units
C. Accounting for some portion of costs and carrying forward the balance
D. Sharing costs into direct and indirect elements
E. Differentiating between variable and fixed costs

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  • 1 Marks

MI – Nov 2023 – L1 – SA – Q9 – Costing Methods

Identifying activities that are part of Activity-Based Costing (ABC).

Activities such as customer service and distribution, material handling, and set-ups are part of:
A. Standard costing
B. Marginal costing
C. Contract costing
D. Activity-based costing
E. Job costing

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  • 1 Marks

MI – May 2023 – L1 – SA – Q5 – Cost Classifications

This question asks for the term used to describe assigning indirect costs to cost centres.

Assigning indirect costs to cost centres is known as:
A. Cost allocation
B. Sales tracing
C. Sales allocation
D. Cost tracing
E. Allotment

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