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 2018 – L1 – SA – Q11 – Costing Methods

Basis for requesting progress payments in contracts.

Question

What is the basis for requesting for progress payments on an on-going contract?
A. Contractor’s invoice
B. Architect’s certificate
C. Bill of quantities
D. Inspection report
E. Certificate of Occupancy

Answer

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Tags: Contract Costing, Payments
Level: Level 1

Topic: Costing Methods
Series: MAY 2018

MI – May 2018 – L1 – SA – Q8 – Costing Methods

Equivalent units and costing method classification.

Question

The term ‘equivalent units’ features under which of the following?
A. Contract Costing
B. Process Costing
C. Standard Costing
D. Job Costing
E. Batch Costing

Answer

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Tags: Equivalent Units, Process Costing
Level: Level 1

Topic: Costing Methods
Series: MAY 2018

MI – Nov 2014 – L1 – SB – Q2 – Costing Methods

This question requires preparing profit statements using the absorption costing approach.

Question

LADUGBO Limited, a company which manufactures and sells a single product named BETA, has the following data relating to the year 2015:

Particulars	N
Selling Price	45.00
Direct Material Cost	10.00
Direct Wages Cost	4.00
Variable Overhead Cost	2.50

The following forecasts of sales and production are expected during the first six months of 2015:

Particulars	January-March	April-June
Sales (units)	60,000	90,000
Production (units)	70,000	100,000

Fixed production overhead costs are budgeted at N400,000 per annum. Normal production level is 320,000 units per annum.
Variable selling and distribution cost is N1.50 per unit sold, while fixed administration cost is N240,000 per annum.

You are required to:
Prepare profit statements for each of the two quarters, in a columnar format, using the absorption costing approach. (20 Marks)

Answer

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Tags: Absorption Costing, Fixed Overhead, Profit Statement, Variable Overhead
Level: Level 1

Topic: Costing Methods
Series: NOV 2014

MI – Nov 2014 – L1 – SA – Q20 – Costing Methods

This question identifies the term used for output from a production process with little recoverable value.

Question

The output from the production process with little recoverable value is referred to as:
A. Residue
B. Scrap
C. Waste
D. Good production
E. Left over

Answer

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Tags: Output, Production Process, Scrap, Waste
Level: Level 1

Topic: Costing Methods
Series: NOV 2014

MI – Nov 2014 – L1 – SA – Q17 – Costing Methods

This question asks about the appropriate method for allocating overhead costs in product costing.

Question

A method of product costing which aims to include, in the total cost of a product, an appropriate share of the organisation’s total overhead is:
A. Marginal costing
B. Activity-based costing
C. Differential costing
D. Absorption costing
E. Product costing

Answer

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Tags: Absorption Costing, Activity-Based Costing, Costing Techniques, Product costing
Level: Level 1

Topic: Costing Methods
Series: NOV 2014

MI – Nov 2021 – L1 – SB – Q1b – Costing Methods

List three advantages and two disadvantages of Activity-Based Costing.

Question

State THREE advantages and TWO disadvantages of the activity-based costing (ABC) system.

Answer

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Tags: Activity-Based Costing, Advantages, Disadvantages
Level: Level 1

Topic: Costing Methods
Series: NOV 2021

MI – Nov 2021 – L1 – SB – Q1a – Costing Methods

Calculate overhead absorption rate per unit based on labour hours.

Question

ABCD is into manufacturing of two products, AB and CD, using similar equipment and methods. The following data were collected from the company’s record:

Calculate the overheads to be absorbed per unit of each product based on
i. Conventional absorption costing using predetermined labour hour
absorption rate. (6 Marks)
ii. An ABC approach using suitable cost drivers. (9 Marks)

Answer

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Tags: Costing, Labour Hour Rate, Overhead Absorption
Level: Level 1

Topic: Costing Methods
Series: NOV 2021

MI – Nov 2021 – L1 – SA – Q8 – Costing Methods

Identify the scenario that is NOT a case of idle time.

Question

When direct labour is being paid but has no work to do, it is called idle time‟. Which of the following is NOT a case of idle time?

A. Machine breakdown during production process
B. Machine breakdown during non-production process
C. Time spent waiting for work due to a bottleneck
D. Running out of vital direct material and waiting for new delivery
E. Lack of work to do due to lack of customer orders

Answer

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Tags: Costing, Idle Time, Labour
Level: Level 1

Topic: Costing Methods
Series: NOV 2021

MI – Nov 2021 – L1 – SA – Q5 – Costing Methods

Identify the scenario in which Activity-Based Costing is NOT suitable.

Question

Activity-based costing is NOT suitable as a method of costing in which of the following circumstances?

A. Where absorption costing is required for inventory valuation
B. Where large proportion of production costs are overhead costs
C. Where products are provided to customer specifications
D. Where production process is not complex
E. Where direct labour costs are relatively small

Answer

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Tags: Activity-Based Costing, Suitability
Level: Level 1

Topic: Costing Methods
Series: NOV 2021

MI – May 2022 – L1 – SB – Q2b – Costing Methods

Prepare accounts for two construction contracts using a columnar format.

Question

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

Answer

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Tags: Construction Contracts, Contract Costing, Cost Allocation
Level: Level 1