NKUHLU DEPARTMENT OF ACCOUNTING

Financial Management 2B
AFM221E

SUGGESTED SOLUTION, NOVEMBER 2013

Time: 3 hours Marks: 150

Assessors: Mr O Matarirano Moderator: Mrs D Emslie

Prof G Bartlett

Question Topic Marks Time

1 Cost classification 27 32 minutes

2 Assignment of costs 36 43 minutes

3 Job costing 16 20 minutes

4 Process costing 24 29 minutes

5 Joint and by-product costing 22 26 minutes

6 Direct and absorption costing 25 30 minutes

150 180 minutes

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QUESTION 1 27 marks

i.

Manufacturing cost statement for Skyview Ltd Marks

Direct material 56 100 2
01-July-12 12 000
Purchases 52 000
30-June-13 -7 900
Direct labour 42 000 0.5
Handling costs 2 500 0.5
Plant leasing costs 6 000 0.5
PRIME COSTS 106 600 1
Manufacturing Overheads 50 100 1
Other indirect materials 9 500 2
01-July-12 6 500
Purchases 7000
30-June-13 -4 000
Sandpaper 1 000 0.5
Lubricants and coolants 1 500 0.5
Indirect manufacturing labour 12 000 0.5
Depreciation – buildings 4 000 1
Depreciation – equipment 5 100 1
Insurance on plant equipment 17 000 0.5
156 700
Opening work in progress 5 890 0.5
Closing work in progress -4000 0.5
Cost of goods manufactured (COGM) 158 590 0.5
13
ii.

Statement of Income for Skyview Ltd Marks

Sales 185 000 0.5
Cost of sales 157 390 2
01-July-12 9 800
COGM 158 590
30-June-13 -11000
Gross Profit 27 610 0.5
Sell & admin costs 9 200 1.5
Net profit 18 410 0.5
5

iii.

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 50% of cost relates to 400 000 wooden chairs Marks
Direct material costs 28050 R 28 050 000 1
Plant leasing cost 3000 R 3 000 000 1

Direct Material cost per unit R28 050 000/400 000 R 70.13 1
Plant leasing cost per unit R3 000 000/400 000 R 7.50 1

iv.

Proportion 400000/700000 1
Wooden cupboards 4/7 * 900 000 514 286 1
Direct material cost 514 286 x 70.13 R 36 066 877 1
Direct material cost per unit R36 066 877 / 514 286 R 70.13 1
Plant leasing cost per unit R3 000 000/514 286 R 5.83 1

QUESTION 2 36 marks

Part A

i.

Allocation base Total Cost centre A Cost centre B Marks

Allocated R 1 029 000.00 R 504 000.00 R 525 000.00
Overhead Allocation Rates
Cost centre A Direct labour hours 56 000 1
Cost centre B Machine hours 75 000 1
OAR R 9.00 R 7.00 2
R9/dlh R7/mh

ii.

Cost centre A Cost centre B Total Marks

Direct cots R 80 000 R 40 000 R 120 000 1
Manufacturing overheads R 207 000
Cost centre A: 9*9000 R 81 000 R 81 000 2
Cost centre B: 7*18000 R 126 000 R 126 000 2
Administration cost R 15 000 1
Total R 342 000
Profit R 102 600
Selling price R 444 600 1

iii.

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 Cost centre A Manufacturing Overhead Account
Accounts payable/bank R 505 000 Absorbed - 9*60000 R 540 000.00 3
Overabsorbed R 35 000.00 1
R 540 000.00 R 540 000.00

Cost centre B Manufacturing Overhead Account

Accounts payable/bank R 540 000 Absorbed - 7*76000 R 532 000.00 3
Underabsorbed R 8 000.00 1
R 540 000 R 540 000

Part B

i. Store Ledger Control Account

Opening balance R 22 000 1 WIP R 240 000 1
Accounts payables R 280 000 1 Closing balance R 62 000 1
R 302 000 R 302 000

ii. Work In Progress Control Account

Opening balance R 65 000 Finished goods 780000 1
Direct labour R 220 000 1
Direct material R 240 000 2
Overheads R 288 000 2 Closing balance R 33 000 1
R 813 000 R 813 000

iii. Finished Goods Control Account

Opening balance 45000 1 Cost of sales 770000 2
Finished goods 780000 1 Closing balance 55000 1
825000 825000

iv. The cost of finished goods destroyed is R55 000

QUESTION 3 16 marks

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(i)

CONTRACT A .

Materials R 700(1) Materials returns R 80 (1)

Plants 1 March 99 R1 000(1) Plant 28 Feb 00 R 880 (1)

Plant hire R 200(1) Materials transferred R 40 (1)

Labour costs R 300(1) Materials on hand R 75 (1)

Overhead costs R 75(1) Debtors R 1 500 (1)

Direct expenses R 25(1) Bal c/d R 301(1)

Profit R 576(1) .

R2 876 R 2 876

Profit calculation

Costs incurred to date R1 225

Estimated cost of completion R 135

Estimated cost of the contract R1 360

Contract price R2 000

Estimated profit R 640 (2)

Profit to be recognized: 1 225/1 360 x 640 = R576

(ii) Estimated profit R640

1500/2000 x R640 = R480 (2)

QUESTION 4 24 marks

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i.
Statement of equivalent production units
Output
Input Total Material Conversion
3 000 0.5 OWIP 3 000 0 300 1
12 000 0.5 Started
Completed 9 040 9 040 0.5 9 040 0.5
Normal losses 960 960 0.5 672 1
CWIP 2 000 2 000 0.5 1600 1
15 000 15 000 12 000 11 612

ii.
Unit cost statement
Current cost 0.5 marks R 65 000 0.5 R 68 000 1
Cost per unit R 11.27 R 5.42 1 R 5.86 1

iii.
Production cost statement
Previous costs (OWIP) R 27 500 0.5
Completed OWIP R 1 758
Material 0 x 5.42 R -
Conversion 300 x 5.86 R 1 758 1
Completed goods 9040 x 11.27 R 101 881 1
Normal loss R 7 486
Material 960 x 5.42 x (9040/11040) R 4 261 1
Conversion 672 x 5.86 x (9040/11040) R 3 225 1
Finished goods R 138 625
CWIP R 21 872
Material 2000 x 5.42 R 10 840 1
Conversion 1600 x 5.86 R 9 376 1
Normal loss
Material 960 x 5.42 x (2000/11040) R 943 1
Conversion 672 x 5.86 x (2000/11040) R 713 1
Total production cost R 160 497 0.5

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 Normal loss apportioning
OWIP 3000
Started 12000
Total 15000
Less
OWIP 3000
Normal loss 960
Denominator 11040
CWIP 2000 1
Completed 9040 1
iv.
Process Cost Account
OWIP R 27 500 Finished goods R 138 625 1
Material R 65 000 CWIP R 21 872 1
Labour R 40 000 0.5
Overheads R 28 000 Rounding R 3 0.5
Total R 160 500 R 160 500

QUESTION 5 22 marks

i. Physical measure method

Proportion Joint Cost
Product Units (kg) (%) Allocated (R )
Course Quarry 100 000 43% 1 R 103 696 1
Medium 80 000 35% 1 R 82 957 1
Fine 50 000 22% 1 R 51 848 1
Total 230 000 100% R 238 500 1
Excluding sale of dust R 250 000

ii.

Constant gross profit percentage method

Sales R 350 000
Course quarry 100 000/ 1000 * R1 000 R 100 000 1
Medium quarry 80 000/ 1 000 * R1 500 R 120 000 1
Fine/Cement 50 000/ 50 * R130 R 130 000 1
Further processing cost 0.5 R 20 000
Joint costs 0.5 R 250 000
By-product sales 0.5 R -11 500
Gross profit R 91 500

Gros profit percentage 1 26.14%

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 Course quarry Medium quarry Fine quarry Total
Sales revenue R 100 000 R 120 000 R 130 000 R 350 000 1.5
Gross profit R 26 140 R 31 368 R 33 982 R 91 490 3
R 73 860 R 88 632 R 96 018 R 258 510 1
Further proc cost R - R - R 20 000 R 20 000 1
Joint costs R 73 860 R 88 632 R 76 018 R 238 510 3

The difference of R10 (R238 510 – R238 500) is a result of rounding

QUESTION 6 25 marks

i Unit cost
Absorption Variable
costing costing
R R
Direct materials 6 6 1
Direct labour 12 12 1
Variable overheads 4 4 1
Fixed overheads 8 - 1
30 22 1
5
ii May June
R R
Sales 1 040 000 1 360 000 1
Cost of goods sold 572 000 748 000
Opening inventory - 88 000 1
Cost of goods manufactured 660 000 660 000 2
Goods available for sale 660 000 748 000 1
Less: Closing inventory -88 000 - 2

Contribution 468 000 612 000

Fixed production expenditure -240 000 -240 000 1
Variable selling expenses -78 000 -102 000 1
Selling and administrative expenses -180 000 -180 000 1
Net profit -30 000 90 000
10
iii Reconcilliation
Profit as per absorption costing 2 000 58 000 1
Fixed costs absorbed in opening inventory - 32 000 2
Fixed costs absorbed in closing inventory -32 000 2
Profit as per variable costing system -30 000 90 000 5

iv Under an absorption costing system fixed production costs are written off as period costs whereas 1
under an absorption costing system fixed production costs are absorbed into the cost of 1
inventory.
If more units are produced than sold in a period profits in an absorption costing system will be 1
higher than in a variable costing system by the amount of production overheads absorbed in 1
the increased closing inventory.
The reverse will also apply. 1
5
Total 25

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