Q.1

Part (a) and (b) (i) related to initial chapters of what is cost accounting, its need and limitations, chart of accounts etc. Very few mentioned that a chart of accounts helps in proper classification and accumulation of data. It was evident that most students do learn various cost amounting methods, without appreciating the real significance of cost accounting for decision making.

Q.2

This question was well done by students. Some students wrongly classified carriage on purchases of basic raw material as direct expenses/indirect production overhead instead of direct material. Like-wise, royalty was shown as indirect production overhead instead of direct expenses.

Q.3

Many students calculated EOQ of the main product instead of the chemical. Other prominent mistake was in part (c) where stockholding cost was calculated with half safety stock plus EOQ or with full safety stock only. The correct solution was full safety stock plus half EOQ.

Q.4

This was an easy question on by-product costing and well attempted by most candidates.

Q.5

(a)

Not many students knew that a general cost increase applied to both fixed and variable costs and was to be calculated as 5/105 of year 2004 total cost of Rs.6.615 million. The balance increase in 2004 costs represented 20% increase in variable costs due to increased activity. Remaining figures would have been worked out easily.

(b)

After calculating total variable costs in Part (a); target sales could easily have been calculated.

(c)

It related to problems in analyzing costs into fixed and variable elements. This is an oft-repeated question but was miserably answered.

Q.6

Following mistakes / shortcomings were observed:

(i) Although the question clearly stated that there were no variable costs in the list of costs given, some students reanalyzed them into fixed and variable costs according to their own judgment.

(ii) In part (ii), many students calculated the artist's variable fee as 25% of the cost of Rs. 3,550,000 rather than 25% of gross sale proceeds.

(iii) Most of the students could not calculate indifference ticket sales level. An easy way was to divide Rs. 1 million fixed cost by the variable cost of Rs. 1000/- and Rs. 1250/- ( 25% of Rs.4000 and Rs.5000) giving indifference levels of 1000 and 800 tickets  respectively.

(iv) Without a correct answer to part (iii), a proper answer to part (iv) may have been difficult. If company expected sales levels below 1000 or 800 tickets, variable artist fee was feasible. For higher expected sales, fixed fee would benefit the company.

Q.7

Common mistakes were:

(i) Full year's fixed cost was charged to each six monthly period.

(ii) Wrong treatment of over/under recovery of fixed production cost. Over recovery should have been reduced from cost of sales figures or added to gross profit. Reverse treatment in case of under recovery.  Many mistakes were made by students in the treatment of over/under recovery.

Q.8

(i) In calculating savings from change in decorative stitching, students omitted loss of fixed cost contribution at Rs.15/- (Rs.4.5 million / 300,000) per toy.

(ii) Students made calculations with 1 eye per toy instead of a pair.

(iii) Scrap calculations were faulty. Use of 540,000 eyes with 10% wastage would require 540,000/ 0.9 eyes and not 540,000 plus 10% eyes.