THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA (U) EXAMINATIONS

LEVEL ONE

COST AND MANAGEMENT ACCOUNTING – PAPER 7

FRIDAY 1 JUNE, 2018

INSTRUCTIONS TO CANDIDATES:

1. Time allowed: 3 hours 15 minutes.

The first 15 minutes of this examination have been designated for reading
time. You may not start to write your answer during this time.
2. This examination contains Sections A and B.
3. Section A is bound separately from Section B.
4. Attempt all the 20 multiple-choice questions in Section A. Each question
carries 1 mark.
5. Attempt four of the five questions in Section B. Each question carries 20
marks.
6. Write your answer to each question on a fresh page in your answer
booklet.
7. Please, read further instructions on the answer booklet, before attempting
any question.

 2018 Public Accountants Examinations Board

 Cost and Management Accounting – Paper 7

SECTION B
Attempt four of the five questions in this section
Question 2
(a) (i) Distinguish between period costs and product costs.
(2 marks)
(ii) Explain the accounting treatment of period and product costs.
(2 marks)
(b) Generations Construction Ltd (GCL) was awarded a contract to construct
health centers in a new district in Uganda. Provided is the company’s trial
balance extract for the year ended 30 April, 2018.
Dr Cr
Shs ‘000’ Shs ‘000’
Amount received 2,500,000
Capital 6,000,000
Buildings 1,900,000
Materials 2,000,000
Creditors 320,000
Bank balance 720,000
Wages 1,800,000
Expenses 400,000
Plant and machinery 200,000
Additional information:
1. Work on the contract commenced on 1 May 2017.
2. Materials:
Shs ‘000’
Inventory 1 May, 2017 1,100,000
Destroyed by fire 100,000
Inventory 30 April, 2018 500,000
3. The contract price was Shs 5,000,000,000.
4. Work certified was 80% of the total contract price and uncertified work
was estimated at Shs 350,000,000 on 30 April, 2018.
5. Expenses are charged to the contract at 15% of the wages.
6. Plant and machinery are depreciated at 5% per annum.

1 June, 2018 Page 2 of 7

 Cost and Management Accounting – Paper 7

Required:
(i) Prepare a contract account for the year ended 30 April, 2018.
(6 marks)
(ii) Determine the profit or loss on the contract.
(3 marks)
(c) New Dawn Ltd produces a daily newspaper which is currently selling at Shs
1,500 per copy.
Their cost structure includes the following:
Direct materials: 60% of the total cost.
Direct labour: 30% of the total cost.
Overheads: 10% of the total cost.
Recently the prices for materials and labour have increased by 20% and
25% respectively. Consequently the existing profit is anticipated to fall by
20% if the selling price remains the same.
Required:
(i) Prepare a statement showing the anticipated increase in the cost per
copy.
(4 marks)
(ii) Determine the cost and the profit per copy.
(3 marks)
(Total 20 marks)
Question 3
(a) Explain any three ways in which employees can commit payroll fraud and
how to overcome it.
(6 marks)
(b) Spark Wiring Company Ltd (SWCL) deals in repairs of electric equipment in
customers’ homes. The following information relates the period ended 31
December, 2017:
Sales recorded were Shs 18,500,000,000 and the PV ratio was 30%.
Due to labour turnover, 900 productive hours were lost.
The actual labour hours worked were 8,000 which include 600 hours
attributed to training new staff.

1 June, 2018 Page 3 of 7

 Cost and Management Accounting – Paper 7

The costs incurred due to labour turnover were:

Shs ‘000’
Recruitment 12,040
Training 7,800
Selection 3,600
Settlement of new staff 60,000
Furthermore, the company’s records revealed the following:
Standard time 15 hours
Time taken 9 hours
Hourly rate Shs 25,000
Required:
(i) Calculate the profit lost as a result of labour turnover for the year
ended 31 December, 2017.
(8 marks)
(ii) Calculate the total earnings of a worker under the Halsey premium
and Rowan plans.
(4 marks)
(iii) Advise SWCL on the bonus scheme to adopt in order to motivate the
workers.
(2 mark)
(Total 20 marks)
Question 4
(a) (i) Define the term ‘process costing’.
(1 mark)
(ii) Identify any three features of process costing.
(3 marks)
(b) Explain any two differences between job costing and process costing.
(4 marks)
(c) Metal and Shaft Ltd produces oil lubricants which pass through 3 processes
to completion. The following information relates to Process 3 for the year
ending 31 December, 2017.
At the beginning of the period work in progress was 1,000 litres. Values
and stage of completion for materials, labour and overheads were as
follows:

1 June, 2018 Page 4 of 7

 Cost and Management Accounting – Paper 7

Shs ‘000’ %
Input materials (Process 3) 12,000 100
Materials added 8,600 50
Labour 6,000 60
Overhead 4,000 30
Output of 6,200 litres were transferred from Process 2 at a value of Shs
46,500,000.
Other costs were as follows:
Shs ‘000’
Materials added 10,000
Labour 15,500
Overheads 16,500
On 31 December, 2017, there was closing work in progress of 800 litres
which were at the following stages of completion.
Input materials 100%
Materials added 50%
Labour 50%
Overheads 60%
Required:
Using first in first out method of stock valuation:
(i) determine the equivalent units and equivalent cost per litre.
(8 marks)
(ii) determine the value of opening work in progress.
(2 marks)
(iii) Prepare a process account for Process 3, in litres.
(2 marks)
(Total 20 marks)

1 June, 2018 Page 5 of 7

 Cost and Management Accounting – Paper 7

Question 5
(a) Explain any two advantages and two disadvantages of budgetary control.
(4 marks)
(b) Umazo Ltd manufactures two products: Skits and Skets in department A
and department B respectively. The following information relates to a
period of three months ending 31 March, 2018.
Standard materials and labour costs per unit:
Shs
Material X per kg 200
Material Y per kg 250
Direct labour per hour 400
Variable overheads are 20% of the labour costs incurred and they are
recovered one month after they have been incurred.
The standard material and labour usage per unit for each product is as
follows:
Material X Material Y Direct labour
Kg Kg Hours
Skits 10 8 8
Skets 12 10 10
Fixed costs are budgeted at Shs 3,000,000 for every quarter of the year
and these will be recovered on a monthly basis.
Umazo Ltd receives rental income from its other investments of Shs
1,500,000 plus 5% on each and every month’s pay. The company incurs
Shs 400,000 as a monthly retainer fee for the management of these rental
investments.
Sales of Skets are 60% cash and 40% credit. Credit sales are realised one
month after the month of sale.
Sales of Skits are 80% cash and 20% credit. Credit sales are realised after
two months from the month of sale. There is a 3% discount if customers
pay in the stipulated period.
Budgeted monthly sales in line with budgeted production are as below:
Quantity Selling price
Units Shs
Skits 40,000 10,000
Skets 35,000 15,500

1 June, 2018 Page 6 of 7

 Cost and Management Accounting – Paper 7

Required:
Prepare a cash budget for Umazo Ltd for the three Months ending 31
March, 2018.
(16 marks)
(Total 20 marks)
Question 6
(a) With examples explain any three methods of classifying overheads.
(3 marks)
(b) Alivia Designers produces men’s suits. The following is the monthly
production and total costs incurred for the first six months of the year
ended 30 June, 2017.
Month No of suits Cost Shs
January 34 6,673,921
February 24 6,238,667
March 36 6,760,972
April 49 7,326,802
May 38 6,848,023
June 22 6,151,616
Required:
Using regression analysis, predict the production cost for the month of
July, 2017 when the company had planned to produce 50 suits.
(8 marks)
(c) T.K. Engineering Company has four departments A, B, C and D. The
following are budgeted costs for the month of April, 2018:
Shs ‘000’
Rent 2,980
Depreciation of plant 1,500
Insurance of plant 800
Lighting 630
Supervision 2,400
Staff welfare 1,200
The following data relates to the four departments:
A B C D
2
Area (m ) 7500 4500 2500 1875
Book value of plant (Shs) 4,500,000 3,750,000 2,500,000 4,200,000
Number of employees 40 22 18 15
Required:
Using appropriate bases apportion the overhead costs to the four
departments. (9 marks)
(Total 20 marks)
1 June, 2018 Page 7 of 7