WEDNESDAY: 6 April 2022. Morning paper.                                                                                         Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper.


1.         Cost accounting uses information provided by financial accounting together with other details of internal operations of an organisation. With  reference  to  the  above  statement,  describe three  similarities  between cost accounting     and  financial accounting.                                                                                                                                                                      (6 marks)

2.           Rengo ltd. has provided the following data for the financial year 2022:

  1. Budgeted output for the year 9,800 units
  2. Standard details for one unit:
  • Direct materials 40 square metres at Sh.530 per square metre.
  • Direct labour costs:

–     Bonding cost centre           48 hours at Sh.250 per hour

–     Finishing cost centre         30 hours at Sh.190 per hour

  1. Budgeted costs and hours per annum:
  • Variable overhead:                       Hours                             Sh.

Bonding cost centre           500,000                 3,750,000

Finishing cost centre         300,000                 1,500,000

  • Fixed overhead:

Production                                                            39,200,000

Selling and distribution                                     19,600,000

Administration                                                     9,800,000



Prepare a standard cost statement of a unit cost showing:

Prime cost.                                                                                                                                                      (2 marks)

Variable production cost.                                                                                                                           (2 marks)

Total cost.                                                                                                                                                       (2 marks)

Selling price per unit at a notion profit of 15% on cost.                                                                   (2 marks)


3.        Jambo Ltd. manufactures bracelets for export trade. The sales revenue is dependent on level of advertising expenditure per month. The company has recorded the following sales information for the past six months:


Month       Advertising expenditure        Sales revenue

                                    Sh.”000″                      Sh. “000”

1                                     1.5                                  30

2                                      2                                    27

3                                      1.75                               25

4                                      3                                    40

5                                     2.5                                  32

6                                      2.75                               38


Estimate fixed and variable elements of the sales revenue using the least squares regression analysis.                                    (6 marks)

(Total: 20 marks)



1.         Discuss four circumstances under which time-based labour remuneration system is deemed to be more appropriate than the output based system.                                                                                                                                     (8 marks)

2.        The following data relate to a particular stock item of Magala Ltd. The company’s management is in the process of setting its stock levels as a way to address the escalating stock handling costs.

The following information is provided:

Normal usage per day                                                                              1,100 units

Minimum usage per day                                                                            500 units

Maximum usage per day                                                                         1,400 units

Lead time                                                                                                  25 – 30 days

Economic order quantity (previously calculated)                          50,000 units


Compute the following:

Re-order level.                                                                                                                                                (2 marks)

Maximum stock level.                                                                                                                                  (4 marks)

Minimum stock level.                                                                                                                                   (4 marks)

Average stock level.                                                                                                                                       (2 marks)

(Total: 20 marks)



1.          Discuss four challenges that you are likely to encounter when installing a costing management system.                (8 marks),

2.        The following information is provided in relation to Baridi Kuu Ltd. The annual demand of its product branded `D’ is  30,000 units. The ordering cost per order is Sh.2,500. The holding cost is expressed  as a percentage of purchase price at 20%.

The following price ranges are given with their respective quantities:


Range                    Quantities            Price (Sh.)



1                              1-3,000                      21


2                              3,001-5,000              19


3                              5,001-7,000              17


4                              7,001-9,000              15.50


5                             9,001-10,000            13



Advise the company on the quantity to purchase.                                                                                               (6 marks)

3.        Seek Plastics Ltd. manufactures plastic components for water pumps.

The following budgeted information is available for three of their key plastic components:

                                                                                 W                               X                        Y

                                                                    Sh. per unit             Sh. Per unit         Sh. Per unit

Selling price                                                            200                              183                       175

Direct materials                                                        50                                40                        35

Direct labour                                                              30                                35                        30

Units produced and sold                                     10,000                     15,000               18,000

Additional information:

  1. The total number of activities for each of the three products for the period is as follows:


                                                                                    W                                   X                           Y

Number of purchase requisitions                              1,200                       1,800                       2,000

Number of set ups                                                       240                          260                          300


  1. Overhead costs have been analysed as follows:

Receiving/ inspecting quality assurance                                                    Sh.1,400,000

Production scheduling/ machine set up                                                     Sh.1,200,000



Determine the budgeted profit per unit of each of the three products using Activity Based Costing (ABC) method.
(6 marks)

(Total: 20 marks)



1.         Distinguish between “marginal costing” and “absorption costing” techniques.                                                                  (4 marks)

2.          Bahati Limited operates a chemical process which produces four different products namely C, F, T and S from the input of raw materials plus water.

Budget information for the forthcoming financial year is as follows:

                                                        Sh. “000”

Raw materials cost                                   268

Initial processing cost                              264

Conversion cost                                       200


Product                 Output               Sales                        Additional processing cost

                           (litres)             (Sh.000)                    (Sh.000)

C                      400,000                768                               160

F                        90,000                232                               128

T                        5,000                   32

S                        9,000                 240                                   8


Additional information:

  1. The company’s policy is to apportion the costs prior to the split-off point on a method based on net realisable value (NRV).
  2. Currently, the intention is to sell product T without further processing, but to process the other three products after the split-off point.
  3. An alternative strategy is being proposed so as to sell all the four products at the split-off point without further processing. If this were done, the selling prices obtainable would be as follows:


Product         Selling price per

                       litre (Sh.)

C                         1.28

F                         1.60


S                       20



Budgeted profit statement showing the profit or loss for each product assuming the current processing policy is adopted.                                                                                                                                                (8 marks)

The profit or loss by product, and in total, assuming the alternative strategy was to be adopted.     (8 marks)

(Total: 20 marks)


1.           Smart products Ltd. operates standard costing and budgetary control system.

The following is the company’s standard cost card:


Direct materials                                                       120

Direct labour                                                               60

Variable overheads                                                   20

Fixed overheads                                                         30

Standard cost per unit                                            230

Standard profit per unit                                           20

Standard selling price per unit                            250

Additional information:

  1. Each unit requires 3 kgs of material which cost Sh.40 per kg and 45 minutes of direct labour at a rate of Sh.80 per hour.
  2. Variable overheads are recovered on direct labour hour basis.
  3. Fixed overhead are absorbed on annual production budget of 180,000 units.
  4. For the year to 31  March 2022,  120,000 units had been manufactured and sold. Contrary to the managements expectation, the company’s profit and loss statement reflected a loss of Sh.1,380,000 instead of the expected profit of Sh.3,6000,000 as provided below:

                                                                         (Sh.000)         (Sh.000)

Sales (120,000 units)                                                                    22,800

Production cost:

Direct materials (100,000kgs)                            12,000

Direct labour (52,000 hours)                               3,900

Variable overheads                                                  2,880

Fixed overheads                                                       5,400            24,180

Profit (loss)                                                                                     (1,380)



Budgeted profit and loss account for the year ended 31 March 2022.                                          (6 marks)

Flexible budget for the production achieved.                                                                                        (6 marks)

Wasiri Ltd. produces 10,000 units per annum by employing 50% of the total factory capacity.

The selling price per unit is Sh.500 and the total costs are as follows:


Materials                                                                       1,000

Wages                                                                             2,000

Fixed overheads                                                          1,000

Fixed Overheads                                                            400

Total costs                                                                    4,400

Additional information:

  1. Variable overheads maintains a constant ratio to the number of units produced.
  2. The production manager is evaluating acceptance of a special offer of additional 10,000 units at a selling price of Sh.387.50 each.
  3. The increased volume of purchases will reduce the material price by 2.5%.
  4. The wage rates will remain constant but due to employment of new workers, there will be a drop in labour efficiency by 5% on all production.


Prepare a statement showing the variation of net profits resulting from the acceptance of the order. (6 marks)

Advise the management of Wasiri Ltd. on whether to accept the offer.                                                       (2 marks)

(Total: 20 marks)

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