Cost Accounting July 2016 Past Paper – KNEC Diploma

Cost Accounting July 2016 Past Examination Question Paper – KNEC

This Past Paper examination was examined by the Kenya National Examination Council (KNEC) and it applies to the following courses:

  • Diploma in Supply chain Management – Module II

  • Diploma in Business Management – Module II

  • Diploma in Project Management – Module II

Note: To easily navigate through the KNEC Past Examination Paper Pdf below, Mobile phone users are advised to use Mozilla or Chrome browsers

3 hours

(a) The following information was extracted from the books of Ndoni Ltd for the year ended 31st December 2015:
Raw materials     2,660,000
Direct labour       3,500,000
Factory power         1,100,000
Factory supervision salaries     1,730,000
Direct expenses      600,000

Additional information

  • Stock of raw materials

1st January 2015                                           400,000

31st December 2015                                     230,000

  • Depreciation charge for the year for plant and 340,000

equipment was:

  • During the year ended 31st December 2015,

2,000,000 units were produced

  • The production cost per unit for the year ended 31stDecember 2014 was Ksh8.50.
  • Prepare a cost statement for the year ended 31 st December 2015 showing:
  1. Raw materials consumed.
  2. Prime cost.
  • Total production cost.
  1. Production cost per unit.
  • State two management actions that may have caused the changes in

production cost per unit noted in (i) above.                                                                                           (8 marks)
(b) Panda Ltd operates a factory which has 15 direct workers. Employees are paid a

basic wage rate of Ksh350 per hour. The normal working hours per week is 40 hours. During the week ended 5th April 2016, the total time worked by direct workers was 690 hours. Overtime is paid at time rate and a third. Overtime is worked to meet general production requirements. Twenty hours of direct workers’ time were regarded as idle time.

For the week ended 5th April 2016, calculate:
(i) Basic wages.
(ii) Overtime wages.
(ii*) Gross wages.
2903/206 2906/206 2
July 2016
(12 marks)
  1. (a) Bidii Ltd manufactures products on order. The firm has two departments, machining

and assembly. Overheads are absorbed using machine hours for machining department and labour hours for assembly departments.

The following estimates were made for the year to 31st December 2013:

Factory overheads Ksh
Machine departments 600,000
Assembly department 300,000

Factory time:

Machining department Assembly department

During the month of February 2015, information relates to the job:

Department Machining Assembly
Direct materials Ksh Ksh
19,000 6,500
Direct labour 3,000 25,000
Time: Hours Hours
Machine hours 240 22
Labour hours 50 1,700

Prepare a job cost card for Job No. JB77.                                                                                  (8 marks)

(b) Mega Ltd was awarded a contract of building an office block for Tawala college.

The contract price was Ksh 15,000,000. The construction started on 1st January 2015. The following information relates to the contract for the year ended 31st December 2015:

Process Ksh (000)
Materials sent to site 3,100
Materials returned to stores 130
Materials on site – 31 December 2015 470
Plant installed at site 5,200
Plant value – 31 December 2015 4,500
Wages paid 2,300
Wages accrued – 31 December 2015 200
Direct expenses paid 1,100
Overhead apportionment 600
Sub-contractors fees 2,400
Work certified 12,000
Cash received •10,800
Cost of work not certified 1,800

Additional information:

  • It is the company’s policy to report two-thirds of the profit. The company takes into account cash received in computation of profit.
  • Retention money had been agreed at 10%.


(1)       Contract account.

  • Contractee account. (12          marks)
  1. (a) Bonde Ltd manufactures a product which uses material M45 in its production.

The following information relates to the material:


March 1 Balance in stock: 1,500 units at Ksh7 each
4 Purchased 2,300 units at Ksh8 each
5 Issued 3,000 units
12 Purchased 4,000 units at Ksh9 each
18 Issued 2,800 units
25 Issued 1,600 units
31 Purchased 3,500 units at Ksh7.50 each

The company uses Last In First Out (LIFO) method of valuing material issues.

Prepare a stores ledger account for the month of March 2016.                                                                     (12 marks)

Kill intends to start offering transport services on route 460. He intends to purchase a motor vehicle for the business. The following information relates to the vehicle:

Cost of vehicle Ksh1,200,00
Estimated scrap value 400,000
Expected useful life 4 years
Estimated distance to cover per year 60,000 Km
Annual insurance premium Ksh150,000
Repairs and maintenance per year 70,000
Drivers monthly salary 20,000
Cost of tyres per annum 38,000
Cleaning and security expenses per month 1,000
Annual membership fee 10,000
Depreciation is charged on straight line basis.
  • Determine:
  1. The total cost per annum.
  2. The cost per Km
  • The vehicle will operate for 250 days per year and earn an average revenue

of Ksh9,000 per day. Other administration expenses are estimated at Ksh530,000 per annum.

  1. Determine the expected annual profit or loss.
  2. Advise Kili whether to invest in the transport services business or not.

(8 marks)
Explain in each of the following terms:

  • Fixed costs
  • Direct costs
  • Variable costs
  • Factory overheads (8 marks)

(b) Jaza Ltd manufactures and sells its components in batches. The batches pass
through four departments. The company has received an order for 200 components which will be made as Batch CPX4. The following information relates to the batch:
Materials                                     Ksh40,475
50 hours in department A at Ksh30 per labour hour.
100 hours in department B at Ksh4o per labour hour.
32 hours in department C at Ksh25 per labour hour.
20 hours in department D at Ksh35 per labour hour.

Overheads are absorbed using direct labour hours. The budgeted overheads and labour hours for the period were Ksh3 50,000 and 28,000 hours respectively. Administration overheads are charged at 10% of factory cost. The company loads a profit of 20% of total cost of all work undertaken.

Prepare a batch statement for CPX4 showing:

  • The total cost
  • The selling price
  • The cost per unit
  • The selling price per unit                                                   (12 marks)
  1. (a) Abdi and Betty are employed by Bora manufacturers. During the week ended

1st March 2016, Abdi was issued with materials to make 200 units and Betty was issued with materials to make 180 units of product P22. The time allowed per unit is 15 minutes.

The normal working hours per week is 40 hours. Overtime is paid

at a rate of time and a half A bonus based on time saved is paid at 70% of the

basic hourly rate of Ksh50. Abdi completed his work m 45 hours while Betty took

42 hours.
(i) For each employee, determine
i) Basic pay
n) Overtime pay
hi) Bonus pay
IV) Gross pay
V) Labour cost per unit

(ii) Advise the management on the efficiency of the two workers.                                                                                                     (8 marks)

(b) Sukuma Ltd has three production departments A, B and C. The following are the budgeted overheads for the year to 31st December 2015:

Ksh Ksh
Rent 360,000
Electricity 150,000
Power 600,000
Supervision 480,000
Insurance of machinery 81,000
Canteen expenses 180,000
Department A 40,000
Department B 37,000
Department C 23.000
Additional information:

Department A B C
Area (m2) 400 400 200
Effective power (HP) 50 30 20

Number of employees                      8             12             4

Book value of machinery (Ksh) 480,000   360,000    240,000

Prepare an overhead analysis sheet.                                                                                                        (12 marks)

  • Explain four benefits that may be derived from installing an effective cost accounting system. (8 marks)
  • Kaka Ltd manufacturers a product which goes through a single process. The following information relates to the process for the month of January 2016.

Process costs:                                Ksh

Materials (3,200 units)             128,000

Labour                                     72,960

Overheads                               59,200

During the year, 2,800 units were transferred to finished goods, while 400 units remained as work-in-progress with the following percentages of completion:

Materials      10%

Labour         60%

Overheads   40%

Prepare a production cost statement showing:

(i) Equivalent production
(>i) Cost per equivalent unit
(lii) Cost of finished goods
(IV) Value of work-in-progress (12 marks)
Share through

Leave a Reply

Your email address will not be published. Required fields are marked *