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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  • 1 Marks

MI – May 2023 – L1 – SA – Q4 – Cost Classifications

This question asks for the method of allocating costs based on individual usage of a common cost.

The method of allocation of costs to individual users based on their usage of a common cost is known as:
A. Bundled products allocation method
B. Variable cost allocation method
C. Stand-alone cost allocation method
D. Grouped allocation method
E. Incremental cost allocation method

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  • 20 Marks

MI – May 2017 – L1 – SB – Q1 – Costing Techniques

Compare production costs using traditional absorption costing and activity-based costing.

LADECK Nigeria Limited makes and sells two products A and B. The company is considering the introduction of an activity-based costing approach to facilitate efficient cost allocation, improvement in cost accuracy, and reduction.

The following information is provided in respect of production and sales for the next period:

PRODUCT A PRODUCT B TOTAL
Production and sales (units) 40,000 20,000 60,000
Direct material cost/unit N25 N20 N1,400,000
Direct labour hours 3 4 200,000
Machine hours 2 5 180,000
Number of production runs 15 25 40
Number of component receipts 70 90 160
Number of production orders 30 20 50

The direct labour hour is paid at N8 per hour.

Budgeted production overhead is absorbed using a direct labour hour rate, and the budgeted overhead is expected to be as follows:

Cost Pool Amount Cost Driver
Machine N900,000 Machine hours
Set-up costs N140,000 Production runs
Carriage inwards N280,000 Company receipts
Packaging N200,000 Production orders
N1,520,000

Required:

a. Calculate the full production costs for the two products using traditional absorption costing (absorbing production overhead on a direct labour hour basis). (6 Marks)
b. Calculate the full production costs for the two products using the activity-based costing approach. (14 Marks)

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  • 1 Marks

MI – May 2017 – L1 – SA – Q7 – Costing Techniques

Identify the costing method used for mass production.

Question:
A situation in which there is mass production of identical units of products and costs are not necessarily assigned to individual units of output is known as:
A. Job costing
B. Step costing
C. Joint costing
D. Process costing
E. Batch costing

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  • 1 Marks

MI – Mar-Jul 2020 – L1 – SA – Q2 – Costing Methods

Identify the incorrect method of allocating service department costs.

In a manufacturing set-up, the service department provides services to other service departments as well as the production department. Which of the following is NOT a method of allocating the service department cost?

A. Specified order of closing
B. Repeated distribution method
C. Indirect allocation method
D. Simultaneous equation method
E. Matrix method

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  • 10 Marks

MI – May 2016 – L1 – SB – Q6b – Costing Methods

Application of Activity-Based Costing (ABC) to allocate overhead costs and calculate cost per unit for products X, Y, and Z.

Quick Company Limited manufactures three products X, Y, and Z. Production and related costs have been budgeted for a period as follows:

PRODUCT X Y Z
No. of Units 40,000 30,000 10,000
Direct Materials 600,000 300,000 160,000
Direct Labour 400,000 150,000 200,000
Machine hours 10,000 6,000 4,000

Overhead costs:

Overhead Type Amount (₦)
Purchasing function 180,000
Machine related costs 114,000
Set-up cost 132,000
Storage 48,000
Materials handling 88,000
Inspection 120,000
Total 682,000

The following activities related to the product line have been budgeted for the period:

PRODUCT X Y Z Total
Number of purchases 20 30 50 100
Number of stores requisitions 100 80 60 240
Number of set ups 80 140 180 400
Number of movements of materials 120 36 20 176
Number of inspections 336 90 74 500

Required:
Calculate the cost per unit for each product using the Activity-Based Costing (ABC) system.

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  • 15 Marks

MA – May 2019 – L2 – Q3a – Relevant cost and revenue

Discuss blanket overhead rate and prepare an overhead analysis sheet, including re-apportionment of service department costs.

Bobich Ltd manufactures plastic containers for the pharmaceutical industry. The factory, in which the company undertakes all its production, has two production departments, namely: Cutting and Shaping, and two service departments, namely: Stores and Maintenance.

The information below was extracted from the company’s budget for its financial year ended 31 March 2019:

Allocated Overhead Costs GH¢
Cutting Department (Cutting) 14,000
Shaping Department (Shaping) 16,000
Stores Department (Stores) 3,500
Maintenance Department (Maintenance) 2,800
Other Production Overheads GH¢
Factory rent 525,000
Factory building insurance 70,000
Plant & machinery insurance 39,000
Plant & machinery depreciation 58,500
Canteen subsidy 150,000
Direct Costs GH¢
Cutting Department 144,000
Shaping Department 210,000

The following additional information is also provided:

Cutting Shaping Stores Maintenance
Floor area (square meters) 18,000 12,000 3,000 2,000
Value of Plant & Machinery (GH¢) 300,000 50,000 25,000 15,000
Number of stores requisitions 1,000 500 – –
Maintenance hours required 2,700 2,000 300 –
Number of employees 34 60 4 2
Machine hours 12,000 2,200 – –
Labour hours 9,000 15,000 – –

Required:
i) Explain what is meant by the term “blanket overhead rate.” (2 marks)
ii) Prepare an overhead analysis sheet based on the above information. You must clearly state the basis used for any apportionments. (7 marks)
iii) Re-apportion the service department costs and calculate the most appropriate overhead rate for each department. (Rate should be calculated to two decimal places). (3 marks)
iv) State THREE (3) reasons why companies calculate pre-determined overhead absorption rates. (3 marks)

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  • 20 Marks

IMAC – NOV 2020 – L1 – Q4 – Accounting for Overheads | Standard Costing and Variance Analysis

Prepare overhead analysis sheet and calculate standard costing variances for Kack Ltd.

a) The following information relates to the first quarter of operations for Kack Ltd:

Machining Assembling Finishing Stores
Area occupied (sq. meters) 12,000 18,000 8,000 2,000
Plant at cost (GH¢000) 600 100 200 100
Number of employees 200 400 100 100
Direct labour hours 16,000 30,000 4,000 –
Direct wages (GH¢) 32,000 60,000 8,000 –
Machine hours 32,000 4,000 4,000 –
Number of requisitions on stores 3,000 1,000 1,000

Allocated costs:

Costs Machining (GH¢) Assembling (GH¢) Finishing (GH¢) Stores (GH¢) Total (GH¢)
Indirect wages 16,000 15,000 14,000 10,000 55,000
Indirect materials 3,000 2,400 6,000 10,000 21,400
Maintenance 3,000 6,000 1,000 – 10,000
Power 4,000 4,000 2,000 – 10,000
Rent 6,000 9,000 4,000 1,000 20,000
Business rates 6,000 9,000 4,000 1,000 20,000
Insurance on building 6,600 9,900 4,400 1,100 22,000
Lighting and heating 7,200 10,800 4,800 1,200 24,000
Depreciation on plant 12,000 2,000 4,000 2,000 20,000
Wage-related costs 8,960 16,800 2,240 – 28,000
Factory administration 3,500 7,000 1,750 1,750 14,000
Insurance on plant 10,800 1,800 3,600 1,800 18,000
Cleaning of factory premises 3,600 5,400 2,400 600 12,000
Total 90,660 99,100 54,190 30,450 274,400

(10 marks evenly spread)

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