ICB Cost and Management Accounting Playlist Handbook SECTION A: REVISION VIDEO QUESTIONS Break-even analysis The budgeted information on the two business opportunities that Green Bush records are currently considering investing in is as follows: Opportunity 1 Opportunity 2 (based on 14 750 units produced) Total (based on 14 050 units produced) Sales 158 750.00 158 750.00 Less: Costs (146 660.58) (146 660.58) Direct material 36 634.62 25 644.23 Direct labour 42 862.50 28 575.00 Fixed manufacturing overheads 23 201.92 69 605.77 Sales commission 7 326.92 14 653.85 Fixed administrative costs 36 634.62 8 181.73 Total 12 089.42 12 089.42 Required: (a) (b) (c) Complete the cost analysis as it appears in your answer book (round all calculations to 2 decimal places). Calculate the break-even point in units for both opportunities. Calculate the break-even point in sales revenue for both opportunities (round your answer to the nearest rand). 1
Section A: Revision Video Questions Answer template: (a) Cost analysis Type of cost Variable cost in total rand value Opportunity 1 Opportunity 2 Variable cost per unit Fixed costs in total rand value Variable cost in total rand value Variable cost per unit Fixed costs in total rand value Direct material Direct labour Fixed manufacturing overheads Sales commission Fixed administrative costs (b) The break-even point in units Opportunity 1 Opportunity 2 (c) The break-even point in sales revenue Opportunity 1 Opportunity 2 2
ICB Cost and Management Accounting Playlist Handbook Apportionment of overheads Sparrows Ltd has three production departments (H, I and J) and one service department in its factory. A predetermined overhead absorption rate has been established for each of the production departments on the basis of machine hours at normal capacity. The overheads of each production department comprise directly allocated expenses and a share of the overheads of the service department, apportioned in the ratio 2:1:1 to departments H, I and J respectively. All overheads are classified as fixed in nature. The actual overhead incurred in each department was in line with the budget. The following table of incomplete information is available concerning the apportionment and absorption of production overheads for a period. Required: Calculate the missing figures for (i) (viii). Production departments H I J Budgeted allocated expenses R 605 000.00 R 525 000.00 R 320 000.00 Budgeted service department apportionment (i) (ii) R 240 000.00 Normal machine hours capacity 13 480 hours (iii) (v) Predetermined absorption rate (vi) R 64.56 (iv) Actual machine utilisation (vii) 12 800 hours 11 650 hours Over/(under) absorption of overheads R 57 952.80 (viii) (R 60 074.00) Answer template: Production departments H I J Budgeted allocated expenses R 605 000.00 R 525 000.00 R 320 000.00 Budgeted service department apportionment (i) (ii) R 240 000.00 Normal machine hours capacity 13 480 hours (iii) (v) Predetermined absorption rate (vi) R 64.56 (iv) Actual machine utilisation (vii) 12 800 hours 11 650 hours Over/(under) absorption of overheads R 57 952.80 (viii) (R 60 074.00) 3
Section A: Revision Video Questions Workings: 4
ICB Cost and Management Accounting Playlist Handbook Manufacturing general ledger accounts The following information relates to Barbara-Bui for the year ended 30 November 2012: Balances on 1 December 2011: Raw materials inventory R 475 263.00 Work-in-process inventory R 112 932.69 Finished goods inventory Indirect material inventory R 575 219.98 R 141 853.14 Transaction totals for the year ended 30 November 2012: Credit purchases of raw materials R 2 360 700.16 Freight on raw material purchases (on credit) R 381 573.95 Indirect material purchased on credit R 597 322.68 Sales of finished products R 38 319 041.56 Direct labour: Factory wages R 2 834 863.52 Pension fund contributions paid by employer R 530 244.84 Medical aid contributions paid by employer R 766 886.66 UIF contributions paid by employer R 28 349.00 Indirect labour R 1 582 267.31 Telephone and Fax: Factory R 950 526.00 Administrative offices R 830 555.63 Security expense: Factory R 203 872.65 Administrative offices R 518 038.87 Rent expense: Factory R 965 481.06 Administrative offices R 258 414.63 Internet expense: Factory R 769 745.72 Administrative offices R 439 854.70 Selling and administrative costs R 1 289 322.53 Office consumables R 140 423.61 Salaries of administrative staff R 1 957 941.51 Sales returns of finished products R 220 072.60 Consumable stores (Indirect materials) issued to the factory R 494 836.54 Depreciation on factory machinery R 378 275.04 Balances on 30 November 2012 Unfinished goods on hand R 1 460 097.62 Raw materials on hand R 346 275.61 Finished products on hand R 1 726 319.72 5
Section A: Revision Video Questions Required: Prepare the following general ledger accounts of Barbara-Bui: Direct material (B7) Work-in-process (B8) Finished goods (B9) Indirect material (B10) Direct labour (C1) Factory overhead costs (C2) Cost of sales (N2) Trading account (F1) Profit and loss account (F2) Answer template: General ledger of Direct material B7 6
ICB Cost and Management Accounting Playlist Handbook Work-in-process B8 Finished goods B9 7
Section A: Revision Video Questions Indirect material B10 Direct labour C1 8
ICB Cost and Management Accounting Playlist Handbook Factory overhead costs C2 Cost of sales N2 9
Section A: Revision Video Questions Trading account F1 Profit and loss F2 10
ICB Cost and Management Accounting Playlist Handbook Cash budgets The budgeted transactions of Kgalagadi CC for the quarter ending the 30 November 2012 are as follows: 1. Budgeted sales amount to R 1 585 000.00 for the quarter. (34% will be sold during September, 40% during October and the rest during November). 55% of the sales are expected to be made on credit. Debtors usually pay their debt as follows: 24% in the month following the month of sales 32% in the second month following month of the sales 12% in the third month following the month of the sales 32% is written off as irrecoverable in the last month of collection 2. Purchases is expected to amount to R 990 625.00 for the quarter. Assume that opening and closing inventories will remain constant and that a constant mark-up percentage is maintained throughout. 47% of all the purchases are made on credit, while creditors are paid in the month following the month in which the purchases were made. 3. Sales personnel receive a commission of 7% on all sales. Office personnel each receive salaries of R 18 011.00 per month. There are 5 office staff members. The commission and salaries are paid in cash every month. 4. A new delivery vehicle with a hire purchase price of R 317 000.00 will be purchased on 1 September. A deposit of 25% of the HP price must be paid on 1 September, and the balance must be paid in 60 equal monthly instalments starting the end of October. R 11 740.74 depreciation is to be written off per month on this vehicle as from 1 September. 5. Income tax amounting to R 36 023.00 is payable during November to SARS. 6. Dividends of R 27 017.00, declared on 10 August, must be during October. 7. The following balances appeared in the books of Kgalagadi CC on 31 August 2012: Bank (favourable) R 840 530.00 Debtors R 282 328.00 Creditors R 247 656.00 8. Credit sales were as follows during the previous budget period: June 2012 R 247 656.00 July 2012 R 148 594.00 August 2012 R 198 125.00 Required: Prepare Kgalagadi CC monthly cash budget for September, October and November 2012. 11
Section A: Revision Video Questions Answer template: Cash budget of 2012 2012 2012 September October November 12
ICB Cost and Management Accounting Playlist Handbook 13
Section A: Revision Video Questions Activity based costing Gentrum Traders uses activity-based costing to calculate product costs for external reports. The business has three activity centres and applies overheads using pre-determined overhead rates for each activity centre. Estimated costs and activities for the current year are as follows: Activity centre Cost driver Expected activity Estimated overhead cost Machine setups Setups 13 680 R 109 850.00 Product assembly Assemblies 10 640 R 160 550.00 Packaging Packaging 13 680 R 152 100.00 Total R 422 500.00 Actual costs and activities for the current year are as follows: Activity centre Cost driver Actual activity Actual overhead cost Machine setups Setups 13 270 R 107 653.00 Product assembly Assemblies 10 959 R 165 366.50 Packaging Packaging 13 133 R 146 016.00 Total R 419 035.50 Required: Determine how much of the total overhead was applied to products during the year and how much overhead was over-applied or under-applied by filling in the missing data in the schedules provided in your answer book. 14
ICB Cost and Management Accounting Playlist Handbook Answer template: Activity center Estimated overhead cost Expected activity Predetermined overhead rate Activity center Predetermined overhead rate Actual activity Applied Overhead cost Total overhead applied Activity center Overhead applied Overhead overapplied/(under-applied) Actual overhead cost Total overhead applied 15
Section A: Revision Video Questions Production cost and trading statements The following information relates to Toscana (Pty) Ltd for the year ended 31 May 20.8: Balances on 1 June 20.7: Raw materials inventory R 8 652.00 Work-in-process inventory R 2 055.90 Finished products (goods) inventory R 10 471.68 Indirect material inventory R 2 582.39 Transaction totals for the year ended 31 May 20.8: Credit purchases of raw materials R 42 975.74 Freight on raw material purchases (on credit) R 6 946.42 Indirect material purchased on credit R 10 874.06 Sales of finished products R 697 585.02 Direct labour: Factory wages R 51 607.72 Pension fund contributions paid by employer R 9 652.93 Medical aid contributions paid by employer R 13 960.91 UIF contributions paid by employer R 516.00 Indirect labour R 28 804.63 Rent: Factory R 26 696.68 Administrative offices R 15 119.98 Electricity: Factory R 3 711.43 Administrative offices R 9 430.72 Insurance: Factory R 17 576.25 Administrative offices R 4 704.35 Telephone and fax: Factory R 14 012.96 Administrative offices R 8 007.40 Selling and administrative costs R 23 471.67 Stationery R 2 556.36 Salaries of administrative staff R 35 643.66 Sales returns of finished products R 4 006.35 Consumable stores (Indirect materials) issued to the factory R 9 008.33 Depreciation on factory machinery R 6 886.37 Balances on 31 May 20.8 Work-in-process goods on hand R 26 580.56 Raw materials on hand R 6 303.83 Finished products (goods) on hand R 31 427.05 16
ICB Cost and Management Accounting Playlist Handbook Required: Prepare the production cost statement, the trading statement and applicable notes of Toscana (Pty) Ltd for the year ended 31 May 20.8 Answer template: Production cost statement of Notes R 17
Section A: Revision Video Questions Trading statement of Notes R Notes to the financial statements: 1. Direct material costs 18
ICB Cost and Management Accounting Playlist Handbook 2. Direct labour costs 3. Factory overhead costs 4. Cost of finished goods sold 19
Section A: Revision Video Questions Standard costing Trekstor Traders uses a standard costing system for recording transactions in respect of the manufacture of their single product, Trickly Hose. The standard and budgeted costs are as follows: Standard direct material per unit (3 metres @ R 7.50 per metre) R 22.50 Standard direct labour per unit (5 hours @ R 28.00 per hour) R 140.00 Standard variable manufacturing overheads per unit (6 machine hours @ R 210.00 R 35.00 per machine hours) Budgeted fixed overheads R 300 000.00 Budgeted machine hours 8 hours The operating results for April 20.8 were as follows: Material purchased 6 000 metres @ R 7.80 per metres Material issued 5 760 metres Direct labour 10 800 hours @ R 28.56 per hour Variable overheads R 285.71 Fixed overheads R 309 000.00 Actual production 2 500 units Actual machine hours 8 hours Required: Calculate the following variances: (a) (b) (c) Material variances Direct material purchase price variance Direct material issue price variance Direct material usage variance Total direct material variance Labour variances Direct labour rate variance Direct labour efficiency variance Total direct labour variance Overhead variances Fixed overhead expenditure variance Variable overhead expenditure variance Variable overhead efficiency variance 20
ICB Cost and Management Accounting Playlist Handbook Answer template: Name of variance: Name of variance: Direct material purchase price variance Direct material issue price variance Name of variance: Direct material usage variance Name of variance: Total direct material variance 21
Section A: Revision Video Questions Name of variance: Direct labour rate variance Name of variance: Direct labour efficiency variance Name of variance: Total direct labour variance Name of variance: Fixed overhead expenditure variance 22
ICB Cost and Management Accounting Playlist Handbook Name of variance: Variable overhead expenditure variance Name of variance: Variable overhead efficiency variance 23
Section A: Revision Video Questions Capital budgeting Husky CC is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects, Ronda Project and Ponzi Project. The relevant cash flows for each project are shown below together with the net present value of the projects using the costs of capital given. Actual cash flows - Project Ronda Project NPV using 21.00% NPV using 19.00% Initial cash outflow (R 2 500 000.00) (R 2 500 000.00) (R 2 500 000.00) Net cash inflow at the end of year 1 R 950 000.00 R 785 123.97 R 798 319.33 Net cash inflow at the end of year 2 R 950 000.00 R 648 862.78 R 670 856.58 Net cash inflow at the end of year 3 R 950 000.00 R 536 250.23 R 563 745.02 Net cash inflow at the end of year 4 R 950 000.00 R 443 182.01 R 473 735.31 Net present value (R 86 581.01) R 6 656.24 Actual cash flows - Project Ponzi Project NPV using 24.00% NPV using 22.00% Initial cash outflow (R 3 000 000.00) (R 3 000 000.00) (R 3 000 000.00) Net cash inflow at the end of year 1 R 550 000.00 R 443 548.39 R 450 819.67 Net cash inflow at the end of year 2 R 850 000.00 R 552 809.57 R 571 083.04 Net cash inflow at the end of year 3 R 1 800 000.00 R 944 077.07 R 991 272.40 Net cash inflow at the end of year 4 R 2 500 000.00 R 1 057 433.99 R 1 128 497.72 Net present value (R 2 130.98) R 141 672.83 Required: (a) Calculate the payback period for each project. (b) Calculate the net present value (NPV) for each project using a cost of capital of 20 %. (c) Calculate the internal rate of return for each project. 24
ICB Cost and Management Accounting Playlist Handbook Answer template: (a) Payback period Project Calculation Payback period (b) Net present value Project Ronda Actual cash flow Calculation Present value Amount Initial cash outflow Net cash inflow at the end of year 1 Net cash inflow at the end of year 2 Net cash inflow at the end of year 3 Net cash inflow at the end of year 4 Net present value Project - Ponzi Actual cash flow Calculation Present value Amount Initial cash outflow Net cash inflow at the end of year 1 Net cash inflow at the end of year 2 Net cash inflow at the end of year 3 Net cash inflow at the end of year 4 Net present value 25
Section A: Revision Video Questions (c) Internal rate of return Project Calculation Payback period 26