UNIVERSITY EXAMINATIONS: 2019/2020
EXAMINATION FOR THE DIPLOMA IN BUSINESS
INFORMATION TECHNOLOGY
DBIT 402: COST ACCOUNTING
FULL TIME
DATE: MAY 2020 TIME: 6 HOURS
INSTRUCTIONS: Answer ALL QUESTIONS.
SECTION B: (20 MARKS)
Horizon Ltd is a manufacturing company which products a single product. The following
standard unit costs relate to the product:
Fixed manufacturing costs per unit are based on a predetermined absorption rate established at a
normal activity level of 45,000 production units per period. Fixed selling and administration
costs are absorbed into the cost of sales at 20% of selling price. Under/over absorbed overheads
are transferred to the profit and loss account at the end of the period.
The following information is available for two consecutive periods:
Required:
a) Prepare income statements using marginal and absorption costing (13 Marks)
b) Prepare a reconciliation statement of profits in (a) above (3 Marks)
c) Outline two strengths and two weaknesses of marginal costing. (4 Marks)
SECTION C: (20 MARKS)
Tindo ltd buys and sells product Q-3. It values stock on the basis of last in first out (LIFO). On 1
June 2018, stock in hand consisted of 4,500 units which were acquired at ksh. 50 per unit. The
operations for the month were as follows:
The company incurred operating cost of ksh. 450,000 during the month.
Required:
a) Prepare the stores ledger card. (14 Marks)
b) Determine the closing stock valuation. (2 Marks)
c) Prepare the trading account for the month. (4 Marks)
