CIMA - C1 Fundamentals of Management Accounting
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390 Answer Bank
64 Cash
9
Payables
9
Work-in-progress
Note. When materials are purchased, they are either paid for in cash (credit cash account) or purchased on credit
(credit/supplier account)
65 (a) C STATEMENT OF EQUIVALENT UNITS
Equivalent units
Total
Materials
Labour
Overheads
Units
Output to process 2*
600
600
600
600
Closing WIP
100
(100%)
100
(50%)
50
(30%)
30
700
700
650
630
*500 units input + opening WIP 200 units – closing WIP 100 units.
Option A is incorrect because it is the number of units input to the process, taking no account of
opening and closing work in progress.
Option B is the completed output, taking no account of the
work done on the closing inventory.
Option D is the total number of units worked on during the period, but they are not all complete in
respect of overhead cost.
(b) B STATEMENT OF COSTS PER EQUIVALENT UNIT
Materials
Labour
Overheads
Total
$
$
$
Opening inventory
2,400
1,200
400
Added during period
6,000
3,350
1,490
Total cost
8,400
4,550
1,890
Equivalent units
700
650
630
Cost per equivalent unit
$12
$7
$3
$22
Value of units transferred to process 2 = 600 units
× $22 = $13,200
Option A is incorrect because it represents only the material cost of the units transferred. Option C is all of
the costs incurred in the process during the period, but some of these costs must be allocated to the
closing work in progress.
Option D is the value of 700 completed units: but only 600 units were transferred
to the next process.
66 D The total loss was 15% of the material input. The 340 litres of good output therefore represents 85% of the
total material input.
Therefore, material input =
85.0
340
= 400 litres
Options A and B are incorrect because they represent a further five per cent and ten per cent respectively,
added to the units of good production.
If you selected
option C you simply added 15 per cent to the 340 litres of good production. However, the
losses are stated as a percentage of input, not as a percentage of output.
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Answer Bank 391
67 PROCESS ACCOUNT
Litres
$
Litres
$
Materials
20,000
4,400
Normal waste
(4,000
× $0.50)
4,000
2,000
Finished goods
17,000
2,550
Abnormal gain
1,000
150
21,000
4,550
21,000
4,550
Workings
Normal loss = 20% × 20,000 litres = 4,000 litres
Expected output = 20,000 – 4,000 = 16,000 litres
Cost per unit =
output Expected
loss normal of proceeds scrap-costs Process
=
litres 16,000
$0.50)(4,000$4,400
×−
=
litres 16,000
$2,000$4,400
−
=
litres 16,000
$2,400
= $0.15
68 (a) During the period there was an abnormal loss of 125 kg.
Workings
Loss in process 2,500 kg – (2,100 + 150)kg = 250 kg
Normal loss 5%
×
2,500 kg = 125 kg
∴
Abnormal loss = 125 kg
(b) Materials $3.00
Labour $0.40
Other direct costs $0.20
Workings
STATEMENT OF EQUIVALENT UNITS OF PRODUCTION
Equivalent units
Total Materials Labour Other direct costs
Units Units % Units % Units %
Normal loss 125 0 0 0
Abnormal loss 125 125 100 125 100 125 100
Finished inventory 2,100 2,100 100 2,100 100 2,100 100
Work in progress
150
150
100
120
80
90
60
2,500
2,375
2,345
2,315
Costs
*$7,125
$938
$463
Cost per equivalent unit
$3.60
$3.00
$0.40
$0.20
* $7,145 less scrap value of normal loss $20 = $7,125.
69 B This is the correct definition of an equivalent unit.
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392 Answer Bank
70 C
Step 1
Determine output
Equivalent units
Input
Output
Total
Materials
Labour and overhead
Units
Units
Units
%
Units
%
Finished units (balance)
400
400
100
400
100
500
Closing inventory
100
100
100
80
80
500
500
500
480
Step 2
Calculate the cost per equivalent unit
Equivalent production
Cost per
Input
Cost
in units
unit
$
$
Materials
9,000
500
18
Labour and
overhead
11,520
480
24
42
Step 3
Calculate total cost of output
Cost of completed units = $42 × 400 units = $16,800
If you selected option A you omitted the absorption of overhead at the rate of 200 per cent of
direct labour costs. If you selected option B you did not allow for the fact that the work in
progress was incomplete. Option D is the total process cost for the period, some of which
must be allocated to the work in progress.
71 B Using the data from answer 70 above, extend
step 3 to calculate the value of the work in progress.
Cost
Number of
Cost per
element
equivalent units
equivalent unit
Total
$
$
Work in progress:
Materials
100
18
1,800
Labour and overhead
80
24
1,920
3,720
If you selected option A you omitted the absorption of overhead into the process costs. If you selected
option C you did not allow for the fact that the work in progress was incomplete. Option D is the total
process cost for the period, some of which must be allocated to the completed output.
72 B Joint products are two or more products produced by the same process and separated in processing, each
having a sufficiently high saleable value to merit recognition as a main product.
A joint product may be subject to further processing, as implied in option A, but this is not the case for all
joint products.
73 D A by-product is output of some value produced in manufacturing something else (the main product).
Option A is incorrect because a by-product has some value.
Option B is incorrect because this description could also apply to a joint product.
Option C is incorrect because the value of the product described could be relatively high, even though the
output volume is relatively low.
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Answer Bank 393
74 D The abnormal loss units are valued at their full production cost and credited to the process account, so that
their occurrence does not affect the cost of good production. Therefore the correct answer is D.
Options A and C are incorrect because the scrap value of the abnormal loss is debited to the
scrap account
and credited to the
abnormal loss account, it has no impact on the process account.
75 The quantity of good production achieved was
2,625
kg.
Good production = input – normal loss – abnormal loss
= 3,000 – (10% × 3,000) – 75
= 3,000 – 300 – 75
= 2,635 kg
76 The value credited to the process account for the scrap value of the normal loss for the period will be $
100
Normal loss = 10%
×
input
= 10%
×
5,000 kg
= 500 kg
When scrap has a value, normal loss is valued at the value of the scrap ie 20p per kg.
Normal loss = $0.20
×
500 kg
= $100
77 The value of the abnormal loss for the period is $
300
kg
Input
5,000
Normal loss (10%
×
5,000 kg)
(500)
Abnormal loss
(300
)
Output
4,200
Cost per kg =
utputExpected o
al lossue of normscrap valts cosInput
−
=
500000,5
100$
*
600,4$
−
−
=
500,4
500,4$
= $1.00
Value of abnormal loss = 300
×
$1.00 = $300
*Materials (5,000 kg
×
0.5)
2,500
Labour
700
Production overhead
1,400
4,600
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394 Answer Bank
78 The value of the closing work in progress for the period was $
4,698
STATEMENT OF EQUIVALENT UNITS
Total
Materials
Labour and overhead
units
units
units
Completed output
8,000
(100%) 8,000
(100%) 8,000
Normal loss
1,000
(0%) –
(0%) –
Abnormal loss
100
(100%) 100
(100%) 100
Closing WIP
900
(100%)
900
(75%)
675
10,000
9,000
8,775
STATEMENT OF COST PER EQUIVALENT UNIT
Labour and
Materials overhead
Total costs *$40,500 $8,424
Equivalent units 9,000 8,775
Cost per equivalent unit $4.50 $0.96
* $40,800 less scrap value normal loss $300 = $40,500
Value of work in progress:
$
Materials 900 equivalent units
×
$4.50
4,050
Labour and overhead 675 equivalent units
×
$0.96
648
4,698
79 The profit to be recognised on the contract is
$390,000
Workings
Approximate degree of completion = $1,170,000/$1,800,000 = 65%
Since the contract is 65% complete and no difficulties are foreseen, it is reasonable to recognise a profit.
Profit to be recognised = 65%
×
final contract profit
= 65%
×
$(1,800,000 – 1,200,000)
= $390,000
80 C
$
Book value of plant delivered to site
648,000
Depreciation on plant delivered:
1 May $600,000
×
25%
×
8/12
(100,000)
1 October $48,000
×
25%
×
3/12
(3,000
)
Book value of plant on site as at 31 December
545,000
Option A is the figure for depreciation to be charged to contract 724. If you selected option B you charged a
full year's depreciation rather than allowing for the fact that the two items of plant were delivered on 1 May
and 1 October respectively. If you selected
option D you made no allowance for depreciation at all.
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Answer Bank 395
81 D
$
Direct materials (5
×
$20)
100
Direct labour (14
×
$8)
112
Variable overhead (14
×
$3)
42
Fixed overhead (14
×
$5*)
70
Other overhead
80
Total cost of job 173
404
Profit margin (
×
20/80)
101
Selling price
505
*Fixed production overhead absorption rate =
000,40
000,200$
= $5 per direct labour hour
Option A is the total cost, but a profit margin should be added to this to determine the selling price. If you
selected
option B you added only $5 for fixed production overhead: but this is the hourly rate, which must
be multiplied by the number of direct labour hours. If you selected
option C you calculated 20 per cent of
cost to determine the profit: but the data states that profit is calculated as 20 per cent of the sales value.
82 A Job costing is a costing method applied where work is
undertaken to customers' special requirements.
Option B describes process costing, C describes service costing and D describes absorption costing.
83 C Workings
Total labour cost incurred during period = $(12,500 + 23,000 + 4,500)
= $40,000
∴
Overhead absorption rate = ($140,000/$40,000)
×
100%
= 350% of labour cost
$
Opening WIP
46,000
Labour for period
4,500
Overhead absorbed ($4,500
×
350%)
15,750
Total production cost
66,250
50% mark up
33,125
Sales value of job 3
99,375
Selling price per circuit board = $99,375
÷
2,400
$41.41
Option B is the selling price without the inclusion of any overhead absorbed. If you selected option D you
calculated a 50 per cent margin based on the selling price, instead of a 50% mark up on cost.
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396 Answer Bank
84 C Since wages are paid on a piecework basis they are a variable cost which will increase in line with the
number of binders. The machine set-up cost and design costs are fixed costs for each batch which will not
be affected by the number of binders in the batch.
For a batch of 300 binders:
$
Direct materials (30 × 3)
90.00
Direct wages (10 × 3)
30.00
Machine set up
3.00
Design and artwork
15.00
Production overhead (30 × 20%)
6.00
Total production cost
144.00
Selling, distribution and administration overhead (+ 5%)
7.20
Total cost
151.20
Profit (25% margin = 33
1
/
3
% of cost)
50.40
Selling price for a batch of 300
201.60
If you selected option A you calculated the cost correctly, but added a profit mark up of 25% of cost,
instead of a margin of 25% of selling price.
If you selected option B you failed to absorb the appropriate amount of fixed overhead. If you selected
option D you treated all of the costs as variable costs.
85 The price to be quoted for job B124 is $
124.50
Production overhead absorption rate = $240,000/30,000 = $8 per labour hour
Other overhead absorption rate = ($150,000/$750,000)
×
100% = 20% of total production cost
Job B124
$
Direct materials (3 kgs
×
$5)
15.00
Direct labour (4 hours
×
$9)
36.00
Production overhead (4 hours
×
$8)
32.00
Total production cost
83.00
Other overhead (20%
×
$83)
16.60
Total cost
99.60
Profit margin: 20% of sales (
×
20
/
80
)
24.90
Price to be quoted
124.50
86
9
Production of the product can be completed in a single accounting period
9
Production relates to a single special order
Job costing is appropriate where each cost unit is
separately identifiable and is of relatively short
duration
.
87
Appropriate Not appropriate
(a) Vehicle cost per passenger-kilometre
9
(b) Fuel cost for each vehicle per kilometre
9
(c) Fixed cost per kilometre
9
The vehicle cost per passenger-kilometre (a) is appropriate for cost control purposes because it
combines the
distance travelled and the number of passengers carried,
both of which affect cost.
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Answer Bank 397
The fuel cost for each vehicle per kilometre (b) can be useful for control purposes because it focuses on a
particular aspect
of the cost of operating each vehicle.
The fixed cost per kilometre (c) is not particularly useful for control purposes because it
varies with the number of
kilometres travelled
.
88 B Number of occupied room-nights = 40 rooms
×
30 nights
×
65%
= 780
Room servicing cost per occupied room-night =
780
$3,900
= $5
Option A is the cost per available room-night. This makes no allowance for the 65% occupancy achieved. If
you selected
option C you simply divided $3,900 by 40 rooms. This does not account for the number of
nights in the period, nor the percentage occupancy achieved. If you selected
option D you calculated the
cost per occupied room, rather than the cost per occupied room-night.
89 (i) Production is carried out in accordance with the wishes of the customer
J
(ii) Work is usually of a relatively long duration
C
(iii) Work is usually undertaken on the contractor's premises
N
(iv) Costs are averaged over the units produced in the period
S
(v) It establishes the costs of services rendered
S
90 (a) (i) St Matthew's $63.40
(ii) St Mark's $33.46
Workings
Number of in-patient days = number of in-patients
×
average stay
St Matthew's = 15,400
×
10 days = 154,000
St Mark's = 710
×
156 days = 110,760
St Matthew's cost per in-patient day = total cost
÷
154,000
= $9,762,780
÷
154,000
= $63.40
St Mark's cost per in-patient day = $3,705,631
÷
110,760
= $33.46
(b) (i) St Matthew's $20.31 (Total cost $2,640,300
÷
130,000)
(ii) St Mark's $52.38 (Total cost $183,330
÷
3,500)
(c) (i) St Matthew's 78.8%
(ii) St Mark's 95.9%
Workings
St Matthew's =
510
402
×
100% = 78.8%
St Mark's =
320
307
×
100% = 95.9%
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398 Answer Bank
91
66,325
Working
Calculation of tonne-km
Journey
Tonnes
Km
Tonne-km
1
34
180
6,120
2
28
265
7,420
3
40
390
15,600
4
32
115
3,680
5
26
220
5,720
6
40
480
19,200
7
29
90
2,610
8
26
100
2,600
9
25
135
3,375
280
1,975
66,325
92 $
0.16
per tonne-kilometre (to the nearest cent).
Working
Average cost per tonne-kilometre =
kilometres-tonneTotal
costTotal
=
325,66
390,10$
= $0.16 per tonne-kilometre (to the nearest cent)
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399
Index
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