QUESTION 1 (17 marks)
Happy Kids (Pty) Ltd (“Happy Kids”) is a small manufacturing company which manufactures a customised wooden table and chair sets for children at competitive prices. Happy Kids received a new order for a table and chairs set, named Job Wood 12.
The following information relates to Job Wood 12:
| Direct materials: | |
| Wood R1.6 per kg
Metal R92 per kg |
100 kg
25 kg |
| Direct Labour: | |
| Machine department (R10 per hour)
Finishing department (R10 per hour) |
50 machine hours
45 direct labour hours |
| Administrative expenses
Profit |
15% of production cost
25% of total cost |
Happy Kids has two departments, the Machine department and the Finishing department, for which the production overhead absorption rate is R5.38 per machine hour and R6.19 per direct labour hour, respectively.
REQUIRED:
Briefly discuss two (2) differences between job costing and batch costing.
(4 marks)
Calculate the following for Job Wood 12:
(a) Prime cost (5 marks)
(b) Production costs (4 marks)
(c) Selling price (4 marks)
QUESTION 2 (31 marks)
Tooty Fruity (Pty) Ltd (“Tooty Fruity”) manufactures a range of dried fruit products using three production departments and one service department, named the Purchasing department. The total budgeted manufacturing overheads for the financial year ended 30 June 2024 is R1 050 640 and Tooty Fruity was operating for 46 weeks in the 2024 budget period.
The following information relates to Tooty Fruity’s four (4) departments:
| Production department A | Production department B | Production department
C |
Service department | |
| Direct budgeted
overheads: |
R278 540 |
R234 580 |
R95 360 |
R54 200 |
| Ratio to apportion indirect budgeted
overheads: |
45% |
30% |
20% |
5% |
| Department specific information: | · 11 direct employees.
· Each employee works 38 hours per week. |
· 6
machines. · Each machine operates 20 hours per week. |
Expected production of 110 000 units in the
budgeted period. |
Service department overheads are apportioned equally to each production
department. |
In addition to the existing service department, Tooty Fruity is considering establishing three additional service departments: a Canteen -, Human Resources – and a Maintenance department.
REQUIRED:
Calculate an appropriate predetermined overhead absorption rate in each production department.
(19 marks)
Calculate the manufacturing overhead cost per unit of finished product in a batch of 95 units which take 8 direct labour hours in department A and two (2) machine hours in department B to produce.
(4 marks)
Briefly explain the advantage of using multiple overhead rates instead of a single plantwide overhead rate to apply overheads.
(2 marks)
For each of the possible new service departments, indicate two potential bases for each service department that could be used to allocate costs to the production departments.
(6 marks)
QUESTION 3 (25 marks)
Cozy Sweats (Pty) Ltd (“Cozy Sweats”) sells tracksuits. At the start of each month, the tracksuits are delivered from a factory to the Cozy Sweats shop due to space constraints and to avoid keeping too much inventory on hand. Cozy Sweats has a perpetual inventory system in which inventory is valued using the weighted average cost method.
The following actual purchases and sales occurred in June 2024 which relate to Cozy Sweats:
| Week number | Number of tracksuits
purchased |
Purchasing cost per tracksuits | Number of tracksuits sold |
| 1 | 25 | R142 | 12 |
| 2 | 35 | R166 | 30 |
| 3 | 45 | R134 | 32 |
| 4 | 35 | R182 | 36 |
The opening inventory on 1 June 2024 is 11 tracksuits at R132 per track suite.
REQUIRED:
Calculate the value of inventory sold (cost of sales) and inventory on hand on 30 June 2024 based on Cozy Sweats current inventory valuation method.
(19 marks)
Calculate the gross margin percentage of Cozy Sweats for the financial month of June 2024 if the selling price per tracksuit is R195.
(6 marks)
Round your answers to two decimal places where required. Show all your workings clearly.
QUESTION 4 (27 marks)
Top Gear (Pty) Ltd (“Top Gear”) manufactures tyres using a labour-intensive manufacturing process. Employees working in this manufacturing process are called level C employees. The following information relates to the monthly remuneration of level C employees:
| Basic wage in cash | R7 800 |
| Living out allowance in cash | R2 150 |
| Overtime: Monday – Friday | 11 hours at R110 per hour |
| Overtime: Sunday and public holidays | 5 hours at double the normal overtime
rate |
| Medical aid contributions:
· Contributions made by Top Gear · Contributions made by employee |
R980 Two-thirds of employer’s contributions |
| Pension fund contributions:
· Contributions made by Top Gear · Contributions made by employee |
5% of total cash remuneration R350 |
| PAYE | 18% of taxable income |
| UIF contributions: | 1.5% of total cash remuneration.
Paid 50/50 by employer and employee. |
REQUIRED:
Calculate the monthly net wage of a level C employee. (17 marks)
Prepare the general journal entries for the payment of the net wages as well as the relevant deductions.
(10 marks)
Answers to Above Questions on Management Accounting
Answer 1: There are significant differences between job costing and batch costing. The method of job costing is mainly utilised when the products are manufactured on the basis of specific customer orders, whereas the concept of best costing is applied when the products are produced in batches. In job costing, the costs are allocated based on a specific job whereas in case of batch costing, the costs are allocated to a batch of products.
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