ACC 212 – COST ACCOUNTING I OSUNTECHCOLLEGE 2023/2024 FIRST Semester Examination

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ANSWER

Here are the answers to your exam questions:

Question 1:

a. Maximum Inventory Level

Maximum Inventory Level=Reorder Level+Economic Order Quantity−(Minimum Usage × Minimum Reorder Period)\text{Maximum Inventory Level} = \text{Reorder Level} + \text{Economic Order Quantity} – \text{(Minimum Usage × Minimum Reorder Period)}

b. Economic Order Quantity (EOQ)

EOQ=2DSHEOQ = \sqrt{\frac{2DS}{H}}

where:

  • DD = Annual Demand = 500×50=25,000500 \times 50 = 25,000 units
  • SS = Cost of Placing an Order = ₦400
  • HH = Holding Cost per Unit = 20%20\% of ₦100 = ₦20

EOQ=2×25,000×40020=1,000,000=1,000 unitsEOQ = \sqrt{\frac{2 \times 25,000 \times 400}{20}} = \sqrt{1,000,000} = 1,000 \text{ units}

c. Number of Orders per Annum

Number of Orders=Annual DemandEOQ=25,0001,000=25 orders\text{Number of Orders} = \frac{\text{Annual Demand}}{\text{EOQ}} = \frac{25,000}{1,000} = 25 \text{ orders}

d. Minimum Inventory Level

Minimum Inventory Level=(Minimum Usage×Maximum Reorder Period)\text{Minimum Inventory Level} = (\text{Minimum Usage} \times \text{Maximum Reorder Period}) =25×6=150 units= 25 \times 6 = 150 \text{ units}

e. Frequency of Order

Frequency=Number of OrdersWeeks per Year=2550=0.5 (every 2 weeks)\text{Frequency} = \frac{\text{Number of Orders}}{\text{Weeks per Year}} = \frac{25}{50} = 0.5 \text{ (every 2 weeks)}

f. Average Inventory Per Annum

Average Inventory=EOQ2+Safety Stock\text{Average Inventory} = \frac{EOQ}{2} + \text{Safety Stock} =1,0002+150=500+150=650 units= \frac{1,000}{2} + 150 = 500 + 150 = 650 \text{ units}

g. Total Holding Cost Per Annum

Total Holding Cost=Average Inventory×H\text{Total Holding Cost} = \text{Average Inventory} \times H =650×20=₦13,000= 650 \times 20 = ₦13,000

h. Total Ordering Cost Per Annum

Total Ordering Cost=Number of Orders×Cost per Order\text{Total Ordering Cost} = \text{Number of Orders} \times \text{Cost per Order} =25×400=₦10,000= 25 \times 400 = ₦10,000

i. Total Relevant Cost Per Annum

Total Relevant Cost=Total Holding Cost+Total Ordering Cost\text{Total Relevant Cost} = \text{Total Holding Cost} + \text{Total Ordering Cost} =₦13,000+₦10,000=₦23,000= ₦13,000 + ₦10,000 = ₦23,000

Question 2:

a. Five Differences Between Cost Accounting and Financial Accounting

  1. Purpose: Cost accounting is for internal decision-making, while financial accounting is for external reporting.
  2. Users: Cost accounting is used by managers, while financial accounting is used by shareholders, creditors, etc.
  3. Legal Requirement: Cost accounting is not mandatory, while financial accounting is legally required.
  4. Time Focus: Cost accounting focuses on present and future costs, while financial accounting records past transactions.
  5. Reporting Format: Cost accounting reports are flexible, while financial accounting follows strict standards.

b. Five Factors to Consider When Installing a Cost Accounting System

  1. Nature of Business
  2. Objectives of the System
  3. Cost of Installation
  4. Capabilities of the Staff
  5. Integration with Other Systems

c. Two Functional Classifications of Costs

  1. Fixed Costs – Costs that do not change with production volume, e.g., rent, salaries.
  2. Variable Costs – Costs that vary directly with production, e.g., raw materials, direct labor.

Question 3:

a. Definition of Cost Accounting
Cost accounting is the process of recording, analyzing, and allocating costs to determine the cost of products and services for decision-making.

b. Three Aims of Establishing a Cost Accounting System

  1. Cost Control
  2. Price Determination
  3. Profitability Analysis

c. Five Main Purposes of Using Cost Codes in Business

  1. Tracking Expenses
  2. Budgeting and Planning
  3. Cost Allocation
  4. Identifying Inefficiencies
  5. Improving Financial Reporting

d. Five Advantages of Cost Accounting Information

  1. Helps in Cost Reduction
  2. Improves Decision Making
  3. Enhances Budgeting and Planning
  4. Assists in Pricing Strategies
  5. Aids in Performance Evaluation

Question 4:

a. Definition of Overhead Apportionment
Overhead apportionment is the process of distributing indirect costs among different departments based on appropriate criteria.

b. Repeated Distribution Method
The costs of service departments (Transport & Security) will be apportioned to production departments (Mashing, Boiling, Fermenting) using the given percentages.

Question 5:

a. Break-even Analysis Calculations

  1. Break-even Point (Units)

Break-even Units=Fixed CostsSelling Price per Unit−Variable Cost per Unit\text{Break-even Units} = \frac{\text{Fixed Costs}}{\text{Selling Price per Unit} – \text{Variable Cost per Unit}} =30,000,000400,000−150,000=30,000,000250,000=120 units= \frac{30,000,000}{400,000 – 150,000} = \frac{30,000,000}{250,000} = 120 \text{ units}

  1. Sales at Break-even Point

=120×400,000=₦48,000,000= 120 \times 400,000 = ₦48,000,000

  1. C/S Ratio

C/S Ratio=Selling Price per Unit−Variable Cost per UnitSelling Price per Unit\text{C/S Ratio} = \frac{\text{Selling Price per Unit} – \text{Variable Cost per Unit}}{\text{Selling Price per Unit}} =250,000400,000=0.625= \frac{250,000}{400,000} = 0.625

  1. Units to Achieve Profit of ₦40,000,000

=30,000,000+40,000,000250,000=70,000,000250,000=280 units= \frac{30,000,000 + 40,000,000}{250,000} = \frac{70,000,000}{250,000} = 280 \text{ units}

  1. Units to Achieve After-tax Profit of ₦21,000,000

Before-tax Profit=21,000,0001−0.30=21,000,0000.70=₦30,000,000\text{Before-tax Profit} = \frac{21,000,000}{1 – 0.30} = \frac{21,000,000}{0.70} = ₦30,000,000 =30,000,000+30,000,000250,000=60,000,000250,000=240 units= \frac{30,000,000 + 30,000,000}{250,000} = \frac{60,000,000}{250,000} = 240 \text{ units}

b. Four Uses of Cost Volume Profit (CVP) Analysis

  1. Determining Break-even Point
  2. Setting Sales Targets
  3. Decision-making for Pricing Strategies
  4. Analyzing Profitability Scenarios

Question 6:

a. Closing Inventory Valuation Using LIFO & FIFO

  • LIFO Method: Last purchases are issued first, so closing inventory consists of the oldest purchases.
  • FIFO Method: Oldest purchases are issued first, so closing inventory consists of the latest purchases.

b. Definitions of Inventory Control Terms

  1. Reorder Level: The stock level at which new inventory should be ordered to avoid stockouts.
  2. Maximum Stock Level: The highest quantity of inventory that should be kept to prevent overstocking.

 

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