Paper 1 Question 1 1.1. The place and function of cost accounting. (8) Cost accounting is the process (1) to compile the cost of producing (1) a certain product, and this will include services and activities. This information is very important to make decisions. (1) Cost accounting is not only used in the manufacturing environment, (1) but also in service and non-profit organisations. (1) Cost accounting is also used to help to determine and evaluate (1) the cost of products and services (1) provided by government institutions, education, hospitals and churches. (1) 1.2. The functions of management accounting. (7) Management accounting is about the planning (1) and control (1) of decisions Planning decisions will set the goals (1) and design the actions (1) to achieve the goals Control decisions on the other hand are comparisons (1) of actual results with expected results (1) and the imposition of accountability for deviations from the standards originally set (1) 2.1. The information that must be kept of each employee. (5) Every employer must keep a record containing at least the following information: The employee's name and occupation (1) The time worked by each employee (1) The remuneration paid to each employee (1) Independent Institute of Education Assessment Bank 2009 Independent Institute of Education (Pty) Ltd 2009 Page 3 of 18 The date of birth of any employee under 18 years of age (1) Any other prescribed information (1) 2.2. The time period for which such information must be kept. (2) A record must be kept by the employer for a period of three years (1) from the date of the last entry in the record. (1) 2.3. The accuracy of entries into staff records. (1) No person may make a false entry in a record maintained. (1) 2.4. The keeping of additional records if an employer already complies with this section of the Act. (2) An employer who keeps a record in terms of this section is not required to keep any other record of time worked (1) and remuneration paid (1) as required by any other employment law. Question 3 Establishment Discuss and plan where the enterprise will be established (2) Factory layout Time of moving material and labour around must be limited. And the layout must be as effective as possible (2) Production line The production line must be designed so that the capacities of the machines in successive processes are synchronised, and to keep the capacity to the minimum (2) Number of employees required, degree of skills required, training of employees (2) Material Availability of raw material is essential the quality of the raw materials, stage of processing and alternative materials (2) 1
Question 4 Use the High-Low method to calculate: 4.1. The variable cost per hour of continuous operation. (8) Variable cost element Maintenance costs (Rand) Hours of continuous operation 3,030 (1) 250 (1) 2,290 (1) 180 (1) 740.00 (1) 70.00 (1) Variable cost element = 740 / 70 = R10.57 per unit 4.2. The fixed cost element of the maintenance costs. (3) Fixed element = Total cost - variable cost/hour (1) = 2 290 - (180 x 10.57) (1) = 2 290-1 902.60 = 387.40 (1) 4.3. What would the expected maintenance cost be if Joseph ensures that the refrigerators are serviced every 220 hours? (4) Estimated maintenance cost at 220 hours of operation: Estimated maintenance cost = Fixed cost + Variable cost/hour (1) Estimated maintenance cost = R387.40 + (220 x R10.57) (1) Estimated maintenance cost = R2 712.80 (2) Question 5 Time period Unit produced Overheads (x) (y) xy x 2 Week 1 120 9 500 1 140 000 14 400 Week 2 130 12 000 1 560 000 16 900 Week 3 150 11 550 1 732 500 22 500 Week 4 140 12 450 1 743 000 19 600 Week 5 140 12 550 1 757 000 19 600 Week 6 130 10 750 1 397 500 16 900 Week 7 160 10 550 1 688 000 25 600 Week 8 170 11 900 2 023 000 28 900 Week 9 180 10 350 1 863 000 32 400 1 320 (1) 101 600 (1) 14 904 000 196 800 Σx Σy Σxy Σx 2 = Na + bσx..(1) Σy Σxy = aσx + bσx 2.(2) 101 600 = 9a + 1 320b (3) (1) 14 904 000 = 1 320a + 196 800b.(4) (1) 134 112 000 = 11 880a + 1 742 400b.(3) x 1 320 (1) 134 136 000 = 11 880a + 1 771 200 (4) x 9 (1) (24 000) 0 + (28 800)b (1) 0.83 = b (1) Substitute b= 0.83 in Equation (3) and solve a 101 600 = 9a + 1 320B (1) 101 600 = 9a + (0.83 x 1 320) (1) 101 600 = 9a + 1 100 (1) 11 167 = a (1) The cost function is: Y = a + bx (1) Y =11 167 + 0.83b (2) 2
Question 6 6.1. The economic ordering quantity (9) Annual usage 18 000 Order cost R 35.00 Holding costs R 1.45 Lead time 8 days EOQ = ((2 x 35 x 18 000) / 1.45) EOQ = (1 260 000 / 1.45) EOQ = 868 966 EOQ= 932 (2) 6.2. How many orders will have to be placed per year? (4) Number of orders to be placed per year = Annual usage / EOQ (1) Number of orders to be placed per year = 18 000 / 932 (2) Number of orders to be placed per year = 19.3 orders per year (1) 6.3. The ordering point (7) Order point = Maximum lead time x Maximum usage per time period (1) Order point = 8 x (18 000/365) (3) Order point = 8 x 49.3 (1) Order point = 395 (2) Question 7 7.1. List the different sub-budgets prepared as part of the master manufacturing budget. (5) The master manufacturing budget can be broken up into a: Raw materials budget (1) Labour budget (1) Manufacturing Overheads budget (1) Inventory budget (1) Purchasing budget (1) 7.2. When controlling budgets, managers look at the budget variances. A budget variance can be one of two (2) types. Name these types and explain what each type of variance means with the aid of an example. (5) A variance can be described as favourable or unfavourable (1) Favourable means that what actually happened is better than what had been planned e. g. o Actual sales = R50 000 while Budgeted sales = R48 000 (1) or o Any other relevant example Unfavourable means that what actually happened is worse than what had been planned e. g. o Actual sales = R34 000 while Budgeted sales = R38 000 (1) or o Any other relevant example 3
Question 8 8.1. Budgeted overheads represent an estimated amount of what future overheads should be (1), whilst applied overheads refer to the amount of overheads which were applied to the production process. (1) 8.2.1. Production unit basis Applied Manufacturing O/heads = Budgeted Manufacturing O/Heads (1) Budgeted units Applied Manufacturing O/heads = 57,500 (1) 5,000 Applied Manufacturing O/heads = 11.50 per unit (1) 8.2.2. Labour hour basis Applied Manufacturing O/heads = Budgeted Manufacturing O/Heads (1) Budgeted Labour hours Applied Manufacturing O/heads = 57,500 (1) 6,250 Applied Manufacturing O/heads = 9.20 per labour hour (1) 8.2.3. Labour cost basis Applied Manufacturing O/heads = Budgeted Manufacturing O/Heads x 100 (1) Budgeted labour cost Applied Manufacturing O/heads = 57,500 x100 (1) 76,000 Applied Manufacturing O/heads = 75.66% of labour cost (1) 8.2.4. Material Cost Basis Applied Manufacturing O/heads = Budgeted Manufacturing O/Heads x 100 (1) Budgeted material cost Applied Manufacturing O/heads = 57,500 X 100 (1) 151,000 Applied Manufacturing O/heads = 38.08% of material cost (1) 8.2.5. Primary cost basis Applied Manufacturing O/heads = Budgeted Manufacturing O/Heads x 100 (1) Budgeted Mat cost + Budgeted Labour cost Applied Manufacturing O/heads = 57,500 X 100 (1) 227,000 Applied Manufacturing O/heads = 25.33% of primary cost (1) 8.2.6. Machine hour basis Applied Manufacturing O/heads = Budgeted Manufacturing O/Heads x 100 (1) Budgeted machine hours Applied Manufacturing O/heads = 57,500 (1) 1,250 Applied Manufacturing O/heads = 46.00 per machine hour (1) 4
Question 9 Calculate the overhead cost per product type using: 9.1. a traditional absorption costing system (11) 9.2. an ABC system (19) 9.1. Traditional absorption costing system Cost centre allocated costs A B A/B Total direct labour hours 48 600 Overhead rate per direct hour 1 367 500 48 600 28.14 Manufacturing time: A 33 500 110 000 0.30 Manufacturing time: B 15 100 44 000 0.34 Overheads per unit: A 0.30 28.14 8.57 Overheads per unit: B 0.34 28.14 9.66 9.2. Activity Based Costing Activities Activity Rate/ Activity Product PB1 Activity Rate/ Activity Product PB2 Material handling 250 679 169,758 60 679 40,742 Material procurement 320 154 49,309 120 154 18,491 Set-up 35 1,604 56,149 12 1,604 19,251 Quality control 220 169 37,200 110 169 18,600 Production 33 500 20 660,350 15 100 20 297,650 Total 972,766 394,734 Number of products 110,000 44,000 Overhead cost per unit 8.84 8.97 Question 10 10.1.1 Calculation of overhead rates - Direct Material Cost base Budgeted overheads x 100 (1) Budgeted direct material = 78,500 x 100 (2) 154,000 = 51% of material cost (1) 10.1.2.Calculation of overhead rates - Direct Labour hours base Budgeted overheads x 100 (1) Budgeted direct labour = 78,500 x 100 (2) 16,800 = 4.67 per hour (1) 5
10.2. Calculation of total cost for job Poli/421/08: Direct materials as base Direct labour as base Direct material 11 500 11 500 Direct Labour 8,400 8,400 Manufacturing overheads (51% of direct material) 4,282 (1) R4.08 per direct labour hour 3,140 (1) 24 182 (1) 23 040 (1) 10.3. Actual overheads 84,200.00 (1) Less Applied overheads 83,189.60 (1) 1,010.40 Under applied (1) Question 11 11.1 Estimate profit Original contract price 680 000 680 000 680 000 Extras 105 000 105 000 680 000 785 000 785 000 Estimated total costs: (450 190) (481 600) (493 200) costs to date 121 540 375 600 493 200 estimated additional 328 650 106 000 - costs Estimated profit/ (loss) 229 810 303 400 291 800 11.2.1 Costs to date to estimated total costs 31-Mar-04 31-Mar-05 31-Mar-06 Estimated profit/ (loss) 229 810 303 400 291 800 Percentage of completion = 121 540 375 600 493 200 450 190 481 600 493 200 Percentage of completion = 27% 78% 100% Profit/ (loss) to date 62 043 236 622 291 800 Less Profit/ (loss) previous year - (62 043) (236 622) Profit/ (loss) for the year 62 043 174 579 55 178 11.2.2 Work certified to total contract price 31-Mar-04 31-Mar-05 31-Mar-06 Estimated profit/ (loss) 229 810 303 400 291 800 Percentage of completion = 100000 383700 785000 680 000 785 000 785 000 Percentage of completion = 15% 49% 100% Profit/ (loss) to date 33 796 148 299 291 800 Less Profit/ (loss) previous year - (33 796) (148 299) Profit/ (loss) for the year 33 796 114 503 143 501 6
Paper 2 Question 1 Observations No. of Calls Rands Highest 12 000 17 700 Lowest 5 000 12 590 Difference 7 000 5 110 Therefore the variable cost per call is (5 110/ 7 000) R0.73 (7) 1.2 Fixed cost per month. (3) Total cost at 12 000 calls is 17 700 Less: Variable costs (12 000 x 0.73)= 8 760 Therefore fixed cost is R8 940 (3) Question 2 2.1 Manufacturing Statement of Tic Toc Ltd for July: Direct materials used 6 000 Raw materials 1 July 4 000 Purchases 7 000 Raw materials 31 July (5 000) Direct labour 1 700 Primary costs 7 700 Manufacturing overheads 2 000 Property rental (1500 x 80%) 1 200 Electricity (1 000 x 80%) 800 Total manufacturing costs 9 700 Work in progress movement 200 Work in progress 1 July 1 000 Work in progress 31 July (800) Cost of finished goods manufactured 9 900 Manufacturing profit (9 900 x 25%) 2 475 Cost of finished goods transferred to 12 375 sales 2.2 Calculate the cost of each clock manufactured during July. (3) Cost of finished clocks manufactured R9 900 Number of clocks manufactured 520 Cost per clock R19.04 Question 3 (Theory) 7
Question 4 Calculation of activity rates: Activity Activity Cost Cost Driver Volumes Activity Rates Material procurement 70 000 (1) 70 (1) 1 000 (1) Material handling 143 000 (1) 275 (1) 520 (1) Factory cleaning 26 000 (1) 650 (1) 40 (1) Human resource management 34 000 (1) 40 (1) 850 (1) Factory rental 100 750 (1) 650 (1) 155 (1) Overhead allocation per unit: Activity Cups Saucers Material procurement 25 x 1 000 25 000 (1) 45 x 1 000 45 000 (1) Material handling 125 x 520 65 000 (1) 150 x 520 78 000 (1) Factory cleaning 250 x 40 10 000 (1) 400 x 40 16 000 (1) Human resource management 25 x 850 21 250 (1) 15 x 850 12 750 (1) Factory rental 250 x 155 38 750 (1) 400 x 155 62 000 (1) Total 160 000 213 750 Number of units 1 250 (1) 1 050 (1) Overhead allocation per unit R128.00 (2) R203.57 (2) Question 5 5.1 Calculate the net wage Ben will receive for this week. (Work to the nearest cent.) Hourly Rate = R12.50 Hours Hourly Rate Rands Normal Hours 45 12.50 562.50 (2) Overtime x 1½ 13 18.75 243.75 (2) Overtime x 2 5 25.00 125.00 (2) Gross Earnings 931.25 (1) Deductions Pension Employee 8% (45) (1) Medical Aid Employee (85.00) (1) UIF Employee 1% (9.31) (1) PAYE 15% (139.69) (2) Net Wage R652.25 (2) 5.2 What would the cost to the company be for Ben if no overtime was worked in a week? (6) Hours Rates Rands Normal hours 45 12.50 562.50 (2) Pension Employer 8% 45.00 (1) Medical Aid Employer 100.00 (1) UIF Employer 1% 5.63 (1) Cost to Company 713.13 (1) 8
Question 7 7.1 If a shopkeeper buys a chair for R155 and sells it for R200, what is his gross margin percentage? (3) Selling price 200 Cost 155 Profit/ gross margin 45 Gross margin percentage 22.5% 7.2 If you purchase a cell phone for R1 618.50 and it has been marked up by 30%, what did it originally cost? (3) Selling price 1 618.50 Mark up percentage 30% Original cost (1 618.50/1.30) 1 245.00 7.3 A pizza shop wants to make R12.65 profit on a pizza with a cost price of R42.35. What will the gross margin percentage be? (4) Cost of pizza 42.35 Required profit 12.65 Selling price must be 55.00 Therefore gross margin percentage is 23% 7.4 A loaf of bread sells for R6.85 in the shop. If the mark up on sales price is 71.25%, what is the gross margin in Rands? (3) Cost 6.85 Mark up (6.85 x 0.7125) 4.88 Therefore gross margin is 4.88 7.5 A carpenter buys a piece of wood for R1 500. His employee spends 15 hours making a table from the wood. The employee earns R25 per hour. If he sells the table for R2 925, what is the gross margin percentage? (5) Cost of wood (direct material) 1 500 Cost of employee (direct labour) (15 x 25) 375 Total cost 1 875 Selling price 2 925 Therefore gross margin is 1 050 Gross margin percentage (1 050/ 2 925) 35.9% 9
Question 8 8.1 Calculate the profit or (loss) made on Job 802. (12) Income Statement for Job 802: Total materials issued (24 000 + 57 500) 81 500 (1) (1) Total overheads incurred (87 000 + 95 000) 182 000(1) (1) Sales 250 000(1) Cost accumulated to July (145 000)(1) Materials costs (Job 803) August (24 000)(1) Labour costs (Job 803) August (12 500)(1) Overhead allocation(job 803) August (53 595) ((24 000/ 81 500) * 182 000) (1) (1) Total costs completed Job 802 (235 095)(1) Profit on Job 802 14 905(1) 8.2 How much cost has been accumulated to Job 803? (5) Costs accumulated to the end of July 0 Materials costs - August 57 500(1) Labour costs - August 35 700(1) Overhead allocation August 128 405 ((57 500/ 81 500)*182 000) (1) (1) Totals costs accumulated to Job 803 221 605(1) 8.3 What is the value of the inventory at the end of August? (10) Balance at the end of July 121 500(1) (1) Purchases August 238 000(1) (1) Issues Job 802 (24 000) (1) (1) Issues Job 803 (57 500) (1) (1) Balance at end of August 278 000(1) (1) 10
Question 9 9.1 Using the weighted average method calculate what the value of the closing stock for May will be. (13) Date Description No. of Items Cost Per Item Rands 1 Opening balance 1 000 3.00 3 000.00 (1) 4 Sale (240) 3.00 (720.00) (1) Balance 760 3.00 2 280.00(1) 10 Purchase 200 3.50 700.00(1) Balance 960 3.10 2 980.00(1) 20 Sale (310) 3.10 (961.00) (1) 24 Sale (210) 3.10 (651.00) (1) Balance 440 3.11 1 368.00(1) 26 Purchase 140 3.80 532.00(1) 28 Closing balance 580 3.28 1 900.00(1) (1) The value of the closing stock for May is R1 900.00. (1) (1) 9.2 If material XYZ sells for R6.00 per item, calculate the gross profit and gross margin percentage for May. (12) No. of items sold (240 + 310 + 210) 760(1) Selling price per item 6.00(1) Total sales for May 4 560.00(1) Cost of sales for May 2 332.00(1) Sold on 4 (240 * 3.00) (720.00)(1) (1) Sold on 20 (310 * 3.10) (961.00)(1) (1) Sold on 24 (210 * 3.10) (651.00)(1) (1) Gross profit 2 228.00(1) Gross margin percentage 48.9%(1) 9.3 What does LIFO stand for? (1) Last in First Out. (1) 11