Topic: Costing Methods

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MI – Nov 2020 – L1 – SB – Q3 – Costing Methods

Apportion joint costs of three products using the physical unit and sales value basis, and calculate profit percentages.

Question

Standard Limited produces three products, “Sta,” “And,” and “Ard,” which pass through the same process and can all be sold as good products. Total joint costs incurred amount to N3,710,000. Output and selling prices of the products are as follows:

Product	Output (Units)	Selling Price (N)
Sta	6,000	250
And	3,500	400
Ard	4,500	350

Required:
Apportion the joint costs and calculate the profit percentage using:
a. The physical unit basis. (10 Marks)
b. The sales value basis. (10 Marks)

(Total 20 Marks)

Answer

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Tags: Joint Costs, Physical Unit Basis, Profit Percentage, Sales Value Basis
Level: Level 1

Topic: Costing Methods
Series: NOV 2020

MI – Nov 2020 – L1 – SB – Q2 – Costing Methods

Prepare the contract account for “Recoverable 777” with materials, plants, and other expenses involved in the contract.

Question

Recoverable Limited is into construction, and the following information relates to one of its contracts, code-named “Recoverable 777” as at the end of the first year. It is the company’s policy to take the difference between the value of work certified and the cost of work certified as profit for the year:

Description	N
Materials purchased directly to site	3,450,000
Materials purchased directly to site but not yet paid	1,300,000
Materials transferred to site	5,650,000
Materials transferred out of site	720,000
Plants purchased for contract	15,000,000
Plant transferred to site	5,000,000
Payment of sub-contractor	4,500,000
Insurance (effective 2 months after commencement of contract)	600,000
Salary	7,500,000
Salary due but not paid	2,000,000
Other site expenses	1,905,000
Head office charges	500,000
Value of work certified	36,500,000
Contract value	50,000,000
Payment received	33,800,000
Value of material on site at end of year	850,000
Value of plant 1 c/d	12,000,000
Value of plant 2 c/d	4,000,000

Required:
Record the contract account for “Recoverable 777”. (Total 20 Marks)

Answer

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Tags: Construction Accounting, Contract Accounts, Material Transfer, Work certified
Level: Level 1

Topic: Costing Methods
Series: NOV 2020

MI – Nov 2020 – L1 – SA – Q8 – Costing Methods

Calculate the profit to be taken from a contract based on work certified and cost of work certified.

Question

: IJKL is a construction company with a contract which is 48% complete and the policy is to recognise three-quarters of notional profit. Value of work certified is N4,500,000, cash received from progress payment is N3,500,000, and the cost of work certified is N4,140,000. The contract sum of the project is N10,000,000.

What will be the profit taken?

A. N583,333

B. N385,000

C. N373,333

D. N210,000

E. N186,667

Answer

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Tags: Contract Costing, Notional Profit, Work certified
Level: Level 1

Topic: Costing Methods
Series: NOV 2020

MI – Nov 2020 – L1 – SA – Q7 – Costing Methods

Calculate the quantity of goods production given wastage and abnormal loss.

Question

A chemical process has a normal wastage of 10% of input in a period. A quantity of 2,500kg of material was introduced, and there was an abnormal loss of 75kg.

What quantity of goods production was achieved?

A. 2,175 kgs

B. 2,250 kgs

C. 2,325 kgs

D. 2,425 kgs

E. 2,625 kgs

Answer

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Tags: Abnormal Loss, Process Costing, Wastage
Level: Level 1

Topic: Costing Methods
Series: NOV 2020

MI – Nov 2020 – L1 – SA – Q5 – Costing Methods

Identify an incorrect statement about marginal costing in process costing.

Question

When marginal costing is used in process costing, which of the following is NOT correct?

A. Process accounts will contain variable costs only

B. Equivalent units are valued at variable cost

C. Transfer from one process to another will be at total costs of the process

D. Losses, abnormal and normal will be valued at variable cost only

E. All fixed costs will be written off, each period, to costing profit or loss

Answer

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Tags: Marginal Costing, Process Costing, Variable Costs
Level: Level 1

Topic: Costing Methods
Series: NOV 2020

MI – Nov 2020 – L1 – SA – Q3 – Costing Methods

Identify a feature that is not characteristic of Just-in-Time (JIT) purchasing.

Question

Which of the following is NOT a characteristic of Just-in-Time Purchasing?

A. Goods delivered immediately before demand or use

B. Increase in number of deliveries, each containing a smaller number of units

C. Goods/material delivery in “factory ready” containers, thereby reducing materials handling

D. Short-term agreement with many suppliers specifying prices, delivery, and acceptable quality levels

E. Minimal checking by purchaser of quality and quantity of deliveries

Answer

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Tags: Inventory, Just-in-Time, Purchasing, Supply Chain
Level: Level 1

Topic: Costing Methods
Series: NOV 2020

MI – Nov 2015 – L1 – SA – Q9 – Costing Methods

Calculates the quantity of good production after accounting for normal and abnormal losses.

Question

XYZ is a chemical processing company with 25,000kg input materials. The company has a normal loss of 10% and an abnormal loss of 750kg. What quantity of good production will be achieved in kg?
A. 24,250
B. 23,250
C. 22,500
D. 21,750
E. 20,750

Answer

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Tags: Abnormal Loss, Normal Loss, Process Costing
Level: Level 1

Topic: Costing Methods
Series: NOV 2015

MI – May 2018 – L1 – SB – Q4b – Costing Methods

career paths for accountants in IT-based environments.

Question

Describe FIVE career path options available to an Accountant in an IT-based environment. (10 marks)

Answer

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Tags: Career Path, Overhead Apportionment
Level: Level 1

Topic: Costing Methods
Series: MAY 2018

MI – May 2018 – L1 – SB – Q4a – Costing Methods

Apportionment of service department overhead and career paths for accountants in IT-based environments

Question

a. The overhead costs of HABA LIMITED is analyzed below:

Production Departments	N
Weaving	1,000,000
Spinning	500,000
Service Departments
Admin	80,000
Maintenance	60,000

The administrative overhead costs are to be apportioned on the basis of Weaving 50%, Spinning 30%, and Maintenance 20%, while the Maintenance overhead costs are to be apportioned on the basis of Weaving 60%, Spinning 20%, and Administrative 20%.

You are required to apportion service departments’ overhead to production departments using the continuous apportionment method. (10 marks)

Answer

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Tags: Career Path, Overhead Apportionment
Level: Level 1

Topic: Costing Methods
Series: MAY 2018

MI – May 2018 – L1 – SB – Q1 – Costing Methods

Preparation of process, abnormal loss, and abnormal gain accounts for Queensly Nigeria Limited.

Question

The following data is compiled from the operations of QUEENSLY NIGERIA LIMITED in respect of their sole product:

	Process 1	Process 2
Material introduced (Kgs)	8,000	2,000
Labour costs (N)	12,000	8,000
Material cost per kg (N)	10	15
Expenses (N)	20,000	15,000
Normal loss (%)	10	15
Output (Kgs)	6,800	7,700

You are required to:

Draw up the process, abnormal loss, and abnormal gain accounts.

Answer

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Tags: Abnormal Gain, Abnormal Loss, Process Costing
Level: Level 1

Topic: Costing Methods
Series: MAY 2018

MI – May 2022 – L1 – SB – Q2a – Costing Methods

Identifying problems associated with site and contract work and ways to mitigate them.

Question

State THREE problems associated with site and contract work and list TWO ways to mitigate against them.

Answer

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Tags: Contract Costing, Site Management
Level: Level 1

Topic: Costing Methods
Series: MAY 2022

MI – May 2022 – L1 – SB – Q1 – Costing Methods

Prepare an overhead analysis to allocate costs to production and service departments.

Question

A small manufacturing company has three production and two service departments. The following data were extracted from the company’s records:

	Total	Spinning & Weaving	Processing	Finishing	Maintenance	Stores
Rent & Rates (₦)	6,000,000
Electricity (₦)	5,400,000
Canteen Exp (₦)	420,000
Maintenance Exp (₦)	2,780,000				2,780,000
Stores Expenses (₦)	1,431,000					1,431,000
Area Occupied (Sq.m)	12,000	3,500	2,500	3,000	2,000	1,000
Energy Consumed (Kw/h)	10,000	3,000	3,000	2,000	1,500	500
No. of Employees	120	40	20	30	20	10
No. of Requisition	2,700	600	500	790	800	10
Plant Value (₦)	55,600,000	25,000,000	15,000,000	15,000,000	600,000
Apportionment Rate 1	100	35%	30%	30%		5%
Apportionment Rate 2	100	25%	20%	30%	25%

You are required to prepare the overhead analysis allocating and apportioning costs to the three production departments and giving the last four digits from the reciprocal apportionment to the Spinning & Weaving department.

Answer

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Tags: Costing, Departmental Costs, Overhead Allocation
Level: Level 1

Topic: Costing Methods
Series: MAY 2022

MI – May 2022 – L1 – SA – Q4 – Costing Methods

Identifying non-composite cost unit from the options.

Question

Which of the following is NOT an example of a composite cost unit?

A. Cost per production run
B. Cost per man day
C. Cost per tonne mile delivered
D. Cost per passenger kilometre
E. Cost per room per day

Answer

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Tags: Composite Cost Unit
Level: Level 1

Topic: Costing Methods
Series: MAY 2022

MI – May 2022 – L1 – SA – Q3 – Costing Methods

Condition under which variable and absorption costing produce the same profit.

Question

Variable costing and absorption costing statements produce the same profit under which of the following conditions?

A. Production equals sales
B. Production exceeds sales
C. Sales exceed production
D. Sales equal fixed overhead
E. Production equals fixed overhead

Answer

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Tags: Absorption Costing, Profit, Variable Costing
Level: Level 1

Topic: Costing Methods
Series: MAY 2022

MI – May 2022 – L1 – SA – Q2 – Costing Methods

Impact of ignoring equivalent units for normal loss in process costing.

Question

In process costing, ignoring equivalent units for normal loss has which of the following effects?

A. Decreases equivalent units and increases the cost per unit
B. Increases equivalent units and increases the total cost
C. Increases total cost and decreases the cost per unit
D. Increases the cost of work in progress and decreases the cost of finished products
E. Increases the cost of completed units and decreases work in progress

Answer

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Tags: Equivalent Units, Normal Loss, Process Costing
Level: Level 1

Topic: Costing Methods
Series: MAY 2022

MI – Nov 2022 – L1 – SB – Q3 – Costing Methods

Preparation of a standard cost card for Beta's product based on given rates

Question

The details below relate to a product (BETA) and are to be used in the revision of its standard cost:

Item	Standard Price/Rate
Material
30kg of B35	₦200/kg
50 units of K010	₦50/unit
20 units of K035	₦100/unit
Direct Labour
Machine Operations: 50 hours	₦120/hour
30 hours	₦105/hour
27 hours	₦80/hour
Packaging: 12 hours	₦96/hour

Production Overhead:

Labour hour rate: ₦9/hour
Machine hour rate: ₦7/hour

Departments X, Y, and Z are for operations while department P is for packaging. The batch quantity is 200, and the revision date is April 30, 2020.

Required:
Prepare a STANDARD COST CARD for the product (Beta).

Answer

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Tags: Cost Card, Direct Labour, Materials, Overheads, Standard Costing
Level: Level 1

Topic: Costing Methods
Series: NOV 2022

MI – Nov 2022 – L1 – SB – Q1c – Costing Methods

Calculation of cost per passenger kilometre for transport company

Question

Igodah Transport company has 15 passenger buses. The buses ply between towns ‘A’ and ‘B’, which are 60 kilometres apart in distance. The buses’ seating capacity is 50 passengers.
Extracts from the company’s books for last month are as follows:

Expenses	Amount (N)
Salaries of drivers and bus attendants	120,000
Diesel and other oil used	160,000
Vehicle repairs and maintenance	50,000
Insurance	60,000
Depreciation	113,000
Interest	90,000
Security	60,000
Car wash expense	50,000
Supervisor’s salary	50,000

Other details include:

The actual seating capacity carried for the month was 80%.
The buses worked for all 30 days of the month, making two trips per day.

Required:
Calculate the cost per passenger kilometre.

Answer

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Tags: Passenger Kilometre, Service Costing, Transportation Costs
Level: Level 1

Topic: Costing Methods
Series: NOV 2022

MI – Nov 2022 – L1 – SB – Q1b – Costing Methods

Calculation of total room suites occupied during the year

Question

A business operates a guest house with 80 single room suites and 40 double room suites.
During the year in review:

The rent of the double room suite is twice that of the single room.
The occupancy of the single room suites is 100%, while that of the double room suites is 75%.
Assume that the year has 365 days.

Required:
Calculate the total number of room suites occupied during the year.

Answer

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Tags: Capacity Utilization, Room Occupancy, Service Costing
Level: Level 1

Topic: Costing Methods
Series: NOV 2022

MI – Nov 2022 – L1 – SB – Q1a – Costing Methods

Listing of service industries and corresponding units of cost

Question

Service costing is used in service industries or service departments of a company.
List in a tabular form FIVE examples of service industries and the “unit of cost” that can be used in each industry.

Answer

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Tags: Cost Units, Service Costing, Service Industries
Level: Level 1

Topic: Costing Methods
Series: NOV 2022

MI – Nov 2022 – L1 – SA – Q10 – Costing Methods

Calculation of appropriate unit cost for a distribution division

Question

Calculate the most appropriate unit cost for a distribution division of a multinational company using the following information:

Kilometres travelled: 636,500
Tonnes carried: 2,479
Number of drivers: 20
Hours worked by drivers: 35,520
Tonnes-kilometres carried: 375,200
Cost incurred: ₦562,800

A. ₦88
B. ₦15.84
C. ₦1.50
D. ₦28,140
E. ₦227

Answer

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Tags: Distribution Costs, Transportation, Unit Cost
Level: Level 1