UNIVERSITYOFCAPETOWN

DEPARTMENTOFACCOUNTING

75Marks

ACC2022FMANAGEMENTACCOUNTING1

CLASSTEST1MARCH2011

1.5Hoursplus10minutesreadingtime

PLEASEREADTHEFOLLOWINGINSTRUCTIONSVERYCAREFULLY:

1.
Please fill in the attendance slip and complete your personal details on the test answer
booksbeforetheendofthetest.Notimeisallowedforthisattheendofthetest.

2.
Pleasefillinyourtutorialgroupdetailsonthecoverofanswerbook1.Notimeisallowed
forthisattheendofthetest.

3.
Allcellphonesmustbeswitchedoffforthedurationofthetestandplacedwithyourother
possessionsoutofsightunderneathyourchair.

4.
Donotopenthistestpaperuntilinstructedtodoso.Youmaynotwriteanythingonyour
test paper or in your answer books before the start of the test or once you have been
instructedtostopwriting.

5.
Each question is to be answered in a separate answer book. Please mark each book
clearlywithonlythenumberofthequestionanswered.Youaresuppliedwith2answer
books.Pleaseensurethatyousubmitallyouranswerbooksattheendofthetest.

6.
All written answers must be written in black or blue ink. For all written answers clearly
showallworkingsandthesemaybedoneinpencil.

7.
NO QUESTIONS WILL BE ANSWERED BY THE INVIGILATORS DURING THE TEST. MAKE
WHATEVERASSUMPTIONSYOUDEEMAPPROPRIATEANDCLEARLYSTATETHESEINYOUR
ANSWER.

8.
Thedurationofthistestpaper(asindicatedinthetablebelow)excludesthereadingtime.

Question1JobCosting&CVP
Question2Process&RelevantCosting

Marks
38
37
75

Suggestedtimeminutes
46
44
90

QUESTION1
(38MARKS:46MINUTES)

Thisquestioncomprisesanumberofindependentpartsthatshouldbeansweredinthesame
answerbookclearlymarkedQUESTON1.

PARTA
(24MARKS:29MINUTES)

The Gold Nest Manufacturers (Pty) Limited (hereafter Gold Nest) makes a variety of pottery
productsthatitsellstoretailers.Thecompanyoperatesajobordercostingsystemandapplies
manufacturing overhead on the basis of direct labour cost. In computing a predetermined
overheadratefortheyearthecompanymadethefollowingestimates,manufacturingoverhead
costR5,800,500anddirectlabourcostR3,867,000.Thecompanyhasprovidedthefollowingdata
extractedfromanExcelworksheetfortheyearended30June2010.

Beginning
Ending
1July2009 30June2010

R
R
Rawmaterials
2,100,000
1,600,000
WorkinProcess
4,400,000
3,750,000
Finishedgoods
6,800,000
5,500,000

Actualcostsincurredduringtheyearended30June2010:

Purchaseofrawmaterials(alldirect)

13,300,000
Directlabourcost

4,000,000

Overheads:

InsuranceFactory

700,000
Depreciation:Factoryequipment

1,800,000
Officeequipment

350,000
Indirectlabour:Factory

2,200,000
Indirectmaterials:Factory

125,000
Propertytaxes

450,000
Maintenance:Factory

235,000
Office

95,000
Rent

540,000

75 % of the property taxes were related to the factory and the rest was for the office and
20%oftherentwasapplicabletotheadministrationoffice.Theactualmanufacturingoverhead
incurredfortheyearwasR5,829,500.

Thistestpapercomprises6(six)pages,includingthiscoverpage.
1


QUESTION1PARTAcontinued

Required:

1.
Calculatethepredeterminedoverheadratefortheyear.
(2Marks)

2.
PreparetheWorkinProcessaccountasitwouldappearinthegeneral

ledger of Gold Nest Manufacturers. The account must be properly

balanced.
(7Marks)

3.
Calculatethemanufacturingoverheadoverappliedorunderapplied

ratefortheyear.
(2Marks)

4.
Preparethegeneraljournalentrytocloseofftheover/underapplied
(2Marks)
manufacturingoverhead.(Narrationsarenotrequired).

5.
Provideadetailedexplanationwhyyouclosedtheover/underapplied

manufacturing overhead off to the account that you chose in part (4)

above.
(3Marks)

6.
Calculatethepricethatwouldhavebeenchargedtothecustomerfor

JobNo.345.JobNo.345wasstartedandcompletedduringtheyearfor

Tredwell Ltd. Job No. 345 required R45,000 in materials and

R90,000ofmanufacturingoverheadwasallocatedtothejob.According

to the companys accounting department, the firm has consistently

addedagrossprofitmarkupof45%onthetotalcostofeachjob.
(5Marks)

7.
Calculate the amount of direct material and applied manufacturing

overheadinclosingWorkinProcessifanexaminationofthejobcards

at 30 June 2010 revealed that direct labour cost made up

(3Marks)
R1,200,000oftheendingWorkinProcessinventoryatthatdate.

PARTB
(14MARKS:17MINUTES)

PlumLtdisamanufacturerofmobilephonesandcurrentlyproducestwodifferentmodels.These
aretheRadBerryandtheJPhone.TheRadBerryisanentrylevelsmartphonemainlyaimedatthe
studentandyoungadultmarket,whiletheJPhoneisanadvancedsmartphonewhichisdesigned
forhighendbusinessusers.ThesellingpriceoftheRadBerryisR1,200whiletheJPhonesellsfor
R2,500.

The company has determined from past experience that they will sell 1 JPhone for every 4
RadBerryssold.Thecostofthecomponentsofeachphoneislistedbelow:

QUESTION1PARTBcontinued

RadBerry
JPhone
RadioTransmitter
R400
3GRadioTransmitter
R650
LCDdisplay
R292
IrisDisplay
R750
Casing
R204
Casing
R310

GPS
R120

The RadBerry takes 30 minutes of labour time to make, while the JPhone takes 45 minutes to
make.EmployeesarepaidatarateofR240perhourandarepaidbasedonthenumberofhours
worked.

AllmanufacturingoverheadsarefixedandamounttoR10,862,280peryear.Thecompanyapplies
manufacturingoverheadtoitsproductsbasedonlabourhoursatapredeterminedoverheadrate
of R255 per hour. Fixed selling and marketing expenses amount to R 1,698,456 per year.
PackagingcostsR40perphone.

ThecompanysmanagementhasdecidedthataminimumnetprofitofR4,200,000isrequiredin
orderforthecompanytobesustainableinthelongterm.

Assumethatthecompanysellsandproducesthesamenumberofphones.

Required:

1.
DeterminethenumberofRadBerrysandJPhonesrespectivelythat

PlumLtdwouldneedtosellinordertomakeaprofitofR4,200,000.
(9Marks)

2.
DeterminePlumLtdssalesrevenuerequiredinordertomakeaprofit

ofR4,200,000.
(2Marks)

3.
IfPlumsells10%morephonesthanwhatisrequiredinpart(1),

calculateusingthedegreeofoperatingleverage,thepercentage

(3Marks)
changeinnetprofit.(Assumethesalesmixremainsconstant).

BonusQuestions:

4.
WhoistheCEOofAppleInc?
(1Mark)

5.
Intermsofpercentagemarketshareinthefourthquarterof2010,

howmanyunitsoftheiPhone4didApplesellandwhatwasitsshare
(2Marks)
ofthecellphoneindustrysprofits?


QUESTION2
(37MARKS:44MINUTES)

Thisquestioncomprisesanumberofindependentpartsthatshouldbeansweredinthesame
answerbookclearlymarkedQUESTON2.

PARTA
(26MARKS:31MINUTES)

Fire Fabric (Proprietary) Limited manufacturesa specialised fabric used in the production of fire
proof clothing used by fire fighters. The material goes through two separate processes Making
andFinishing.ThefabricisspunintheMakingDepartmentandthenspecialfireproofcoatingsare
addedintheFinishingDepartment.

The 1 January 2011, work in process inventory in the Finishing Department consisted of 3,000
unitsthatare60percentcompleteastoconversion.DuringJanuary14,000unitsweretransferred
in from the Making Department and 14,000 good units were completed and transferred to
FinishedGoods.

IntheFinishingDepartmentmaterialsareaddedatapoint20%intotheprocessingandinspection
occursatapoint40%intotheprocessing.Atotalof500unitswereidentifiedasdefectiveinthe
Finishing Department and normal spoilage in the Finishing Department is usually 0.5% of the
inputs.

The31January2011workinprocessinventorywas100%completeastomaterialsand50percent
complete as to conversion. Factory overhead is applied to production on the basis of 150% of
directlabourcost.FireFabric(Proprietary)LimitedaccountsforproductionusingtheFirstInFirst
Out(FIFO)method.Thefollowingcostinformationisprovided:

FinishingDepartment

Opening
Current
WorkinProcess
PeriodCosts

R
R
Transferredin
55,000
364,000
Directmaterials
102,000
672,000
Directlabour
50,000
327,600
?
Factoryoverhead
75,000

282,000
?

Required:

(15Marks)
1.
Prepare a detailed schedule reflecting the calculation of
physical units of production and the equivalent units of
productionintheFinishingDepartment.

(6Marks)
2.
Prepare a detailed schedule reflecting the costs to be
accountedforandthecostperequivalentunitsofproduction
intheFinishingDepartment.

QUESTION2PARTAcontinued

3.
Calculate the cost of completing opening inventory in the

FinishingDepartment.
(1Marks)

4.
Calculate the value of abnormal spoilage for the month

ended31January2011intheFinishingDepartment.
(2Marks)

5.
Calculatethevalueofworkinprocessat31January2011in

theFinishingDepartment.
(2Marks)

PARTB
(11MARKS:30MINUTES)

YourauntrunsherownsuccessfulmanufacturingcompanyintheWesternCape.Sheisinterested
tohearthatyouarestudyingmanagementaccountingandhassomequestionsforyouaboutthe
topic of relevant costing. She says I was looking up some of the concepts on the internet but
perhaps you can help me to consolidate my thinking. I can see and I think I understand the
numerical examples that are used for each type of relevant cost decision but I need a set of
guiding principles or decision rules that apply to each of the relevant cost decisions. Shall we
start?

Required:

Incarefullystructuredsentencesanswerthefollowing:

i.
What is the principle or decision rule when considering

whetherornotdroporaddasegment?
(2Marks)

ii.
What three factors should be considered in the decision to

makeorbuyacomponent?
(3Marks)

iii.
What is the principle or decision rule when considering
(2Marks)
whethertoacceptaspecialorder?

iv.
Why are fixed manufacturing costs not normally considered
(1Mark)
inaspecialorderdecision?

v.
Whatisabottleneck?
(1Mark)

vi.
What is the principle or decision rule when considering
(2Marks)
whethertosellorprocessfurther?

Thisistheendofthepaper

(3)

(1)
(2)

*R327,600+R327,600x150%=R327,600+R491,400=R819,000

R134.00

Total
R
282,000
1,855,000
2,137,000

CostWorkinprocessinventory,1January
CostincurredinOctober

Equivalentunitsofproduction
Costperequivalentunit
Costpercompletedunit

14,000
R26.00

Transferredin
R
n/a
364,000

3,000
11,000
14,000
70
430
2,500
17,000

Beg.WIP(given)
Transf.MakingDept

Beg.WIP1Feb

Part2

(2)

14,000
R48.00

Materials
R
n/a
672,000

13,650
R60.00

Conversion
R
n/a
*819,000

Conversion
%
EU

100
14,000
40
28
40
172
50
1,250

15,450
60 (1,800)

13,650

Materials
%
EU

100
14,000
100
70
100
430
100
2,500

17,000
100
(3,000)

14,000

Transferredin
%
EU

100
14,000
100
70
100
430
100
2,500

17,000
100
(3,000)

14,000

Physicalunits(January)FIFO
3,000 Beg.WIPcompleted
14,000 Startedandcompleted
Completed(given)
Normalloss(0.5%x14,000units)
Abnormalloss(50070)
ClosingWIP(balancingfigure)
17,000

2,500

QUESTION1BSUGGESTEDSOLUTIONcontinued

Part2SalesRevenue:

RadBerry

65344xR1200=
78412800
JPhone

16336xR2500=
40840000

R119252800

Part3Degreeofoperatingleverage=
ContributionMargin 205.20x81680=
16760736
NetProfit

4200000

4200000
=

3.99(or4)

Changeinsalesof10%=10%x4=40%changeinprofit

Bonusquestions:
Part4 SteveJobs

Part5 4%and50%respectively

QUESTION2ASUGGESTEDSOLUTION

Part1

ACC2022FManagementAccounting12011ClassTest1Solution

ACC2022FManagementAccounting12011ClassTest1Solution

ACC2022FManagementAccounting12011ClassTest1Solution

QUESTION2ASUGGESTEDSOLUTION

Part3
OpeningWIPcompleted

conversioncosts
1,200EU1xR60.00
72,000

OpeningWorkinProcesswas60%completedwithrespecttoconversioncostsin
the previous period so 40% was completed in this current period. 3,000 units x
40%=1,200units.

Part4

Abnormalspoilage

transferredin
430EUxR26.00
11,180

materials
430EUxR48.00
20,640

conversioncosts
172EUxR60.00
10,320

42,140

Part4

ClosingWorkinProcess

transferredin
2,500EUxR26.00
65,000

materials
2,500EUxR48.00
120,000

conversioncosts
1,250EUxR60.00
75,000

260,000

QUESTION2BSUGGESTEDSOLUTION

i.
Wewouldonlydropasegment,division,orproductifthecompanyoverallprofit

increased(1).Thiswouldonlyhappenifthefixedcostsavingsexceededthelost

contributionmargin.(1)
(2)

ii.
Inmakeorbuydecisionsweshouldconsider:

Variablecostssaved(1)

Fixedcostssaved(1)

Additionalcontributionmargin(fromanothercomponent)wegainbynot
(3)
producingthiscomponent(1)

iii.
Aspecialorderisprofitableaslongasincrementalrevenues(1)exceedincremental

costsoftheorder(1)
(2)

iv.
Inaspecialorderdecisionnormalsalesandproductionshouldcoverthe

manufacturingcosts
(1)

v.
Whenaconstraintisapersonoramachineitsknownasabottleneck
(1)

vi.
Wedecidetoprocessfurtherwhentheincrementalrevenueexceedstheincremental
(2)
processingcostsincurredafterthesplitoffpoint.