DBIT402  COST ACCOUNTING.

UNIVERSITY EXAMINATIONS: 2017/2018
EXAMINATION FOR THE DIPLOMA IN BUSINESS INFORMATION
TECHNOLOGY
DBIT402 COST ACCOUNTING
DATE: APRIL, 2018 TIME: 1 ½ HOURS
INSTRUCTIONS: Answer any Three Questions.

QUESTION ONE: (20 MARKS)
a) Clearly and in detail, explain the differences between the following cost classifications
and give examples in each case:
(i) Variable costs and Fixed costs (4 Marks)
(ii) Relevant (avoidable) and irrelevant (unavoidable) costs (4 Marks)
(iii) Sunk costs and opportunity costs (4 Marks)
b) Discuss the importance of cost accounting to a small enterprise. (8 Marks)
QUESTION TWO: (20 MARKS)
a) Identify and explain any five benefits of controlling materials in the organization. (5 Marks)
b) The following are the stock movements of stock item Q-3

The stock as at 31 August was 4,500 units valued at sh 5 each.
Required:
Prepare stock cards for stock item Q-3, using each of the following stock pricing methods:
i). FIFO (8 Marks)
ii). LIFO (7 Marks)
QUESTION THREE: (20 MARKS)
a. Define EOQ and state FOUR limitations of EOQ model (5 Marks)
b. EOQ model has assumptions that enable it to function properly. Enumerate and explain
three of these assumptions. (3 Marks)
c. Keshi Enterprises has provided the following data in respect of its major raw materials.
Maximum consumption 2,400 units
Normal consumption 1,800 units
Minimum consumption 1,200 units
Re-Order Period 8-12 weeks
Re-order quantity 12,000 units
Required:
i. Re-order level (3 Marks)
ii. Maximum stock level (3 Marks)
iii. Minimum stock level (3 Marks)
iv. Average stock level (3 Marks)
QUESTION FOUR: (20 MARKS)
a) Distinguish 5 differences between financial accounting and management accounting.
(10 Marks)
b) XY ltd has provided the following information with respect to their products
Estimated fixed costs Kshs 800,000
Variable costs Kshs 100 per unit
Selling price Kshs 200 per unit
Required:
i. Calculate the number of units to be sold so as to break even (4 Marks)
ii. Determine the number of units to be sold to earn a target profit of Ksh 60,000 (3 Marks)
iii. Determine the margin of Safety (3Marks)
QUESTION FIVE: (20 MARKS)
a) Explain FOUR differences between marginal and absorption costing (8 Marks)
b) The following data have been extracted from the budgets and standard costs of ABC
Limited, a company which manufactures and sells single product.
Selling price 450.00
Direct materials cost 100.00
Direct wages cost 40.00
Variable overhead costs 20.00
Fixed production overhead Sh.4,000,000 per annum
Fixed selling and distribution costs Sh.800, 000 per annum
The following patterns of sales and production are expected during the year 2016.
Sales (units) 150,000
There was no closing or
opening stock
Required:
Prepare profit statements for each of the two quarters, in a columnar format, using the
following:
(i) Marginal costing (6 Marks)
(ii) Absorption costing (6 Marks)

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