# DBIT 402 COST ACCOUNTING.

UNIVERSITY EXAMINATIONS: 2014/2015
EXAMINATION FOR THE DIPLOMA IN INFORMATION
TECHNOLOGY
DBIT402 COST ACCOUNTING
DATE: AUGUST 2016 TIME: 1½HOURS
INSTRUCTIONS: Answer Any THREE Questions.

QUESTION ONE
Distinguish between the terms in each of the following pairs of terms:
(a) Period and revenue costs. (5 Marks)
(b) Imputed and out of pocket costs (5 Marks)
(c) Semi-variable and stepped costs (5 Marks)
(d) Direct and variable costs (5 Marks)
QUESTION TWO
Although stocks of materials may be planned to maximize profitability, when stock record
cards are compared to actual physical stocks, differences often arise.
(a) Explain possible reasons for these differences. (4 Marks)
(b) Using a diagram to illustrate your answer, explain the rationale underlying the
economic order quantity model. (The mathematical derivation is not required)
(4 Marks)
(c) Explain briefly the limitations of economic order quantity. (4 Marks)
(d) Bidii Enterprises is located at Kariobangi Light Industries area in Nairobi. The
company manufactures a product ‘comex’ which is used in the building industry. The
main raw material used in the manufacture of ‘comex’ is material B4 2000.
The following information relates to material B4 2000.
Annual requirements : 144,000 units
Ordering costs : Sh.12,500 per order
Annual holding costs : 20% of the purchase price
Purchase price per unit : Sh.500
Safety stock requirement : None
Required:
(i) The economic order quantity. (2 Marks)
(ii) The number of orders needed per year (2 Marks)
(iii) Total cost of ordering and holding material B4 2000 per year. (4 Marks)
QUESTION THREE
Rapid Results Ltd manufactures three products A, B, and. The company has 30 direct workers
being paid under a group bonus scheme. There are three categories of employees who are paid
a bonus of the excess of time allowed over time taken. This bonus is computed at the rate of
75% of the employees’ base rate and is shared among the direct worker in proportion to time
spent on the work. The relevant production details for the period under consideration are as
follows:

a. Time allowed, time taken and time saved during production. (6 Marks)
b. Percentage of hours saved to hors taken. (2 Marks)
c. Total bonus due to each category of employees. (6 Marks)
d. Total earnings due to the group. (6 Marks)
QUESTION FOUR
a) Name four ways in which a company could finance a cash deficit. (4 Marks)
b) Discuss the importance of budgetary control (8 Marks)
c) Explain the limitation of budgets (8 Marks)
QUESTION FIVE
(a) Distinguish between financial accounting and management accounting (10 Marks)
(b) Costs are classified in different categories. Identify 5 of them (10 Marks)

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