QUESTION ONE [25]

Distinguish between the following two methods of allocating joint costs:
Sales value method (5)
Gross margin method (5)

Analyse the purpose of preparing financial statements. (10)
Describe the meaning of the term variable cost. (5)

QUESTION TWO [25]

A standard quantity of 2 kilograms of material BB at a standard price of R4 per kilogram is allowed for the production of one unit of product Triple B. The cost figures for the first quarter of the year showed that 4 400 kg of material BB was purchased at R4,20 per kg. 2 000 units of product Triple B were produced using 4 200 kg of material BB.

You are required to calculate the following variances for material BB:
Purchase price variance (4)
Issue price variance (4)
Quantity variance (4)
Total material variance for the 4 200 kg of material issued. (4)

To produce one unit of product Triple B a standard quantity of 4 direct labour hours at a standard rate of R6 per hour is allowed. The wage records show that it took 2 100 hours at R5,90 per hour to produce 500 units of product Triple B.

You are required to calculate the following labour variances:
Labour rate variance (4)
Labour efficiency variance (3)
Total labour variance (2)

QUESTION THREE [25]

WTL Ltd produces a stylish yet affordable handbag that sells for R30 per unit. Variable costs to manufacture and sell are R16 per unit. Fixed costs and expenses are budgeted at a total of R 54 600 per year.

Required:
Discuss the concept ‘contribution margin.’ (4)
Calculate the break-even value in Rands. (4)
Calculate the net income to be expected on sales of R240 000. (4)
Calculate the sales revenue required to produce net income of R7 000. (4)
If fixed costs were to be increased by R 25 760, calculate the increase in sales revenue that would be required to cover the increase in fixed costs. (4)
If the selling price is decreased by 20%, what percentage increase in the number of units sold is necessary to offset this decrease in selling price. (5)

QUESTION FOUR [25]

The following information pertains to SMR Ltd for the three months ended 31 December.

Additional information:
1. It is expected that debtors will settle their accounts as follows:
• 20% in the month of invoice
• 70% in the month after the month of invoice, and
• 5% in the second month after the month of invoice.
• The remaining 5% is usually written off as bad debts.

2. Trade creditors are paid in the month after the purchases at a discount of 5%.
3. 50% of the salaries and wages are weekly wages. Because wages are paid weekly, usually 10% of the wages are paid in the month following the month in which they were incurred.
4. Expenses are paid as they arise.
5. The favourable bank balance on 1 November was R 16 000.

Required:
Prepare the cash budget for November and December. (20)
Discuss how the budgeting process in an organisation benefits a functioning standard costing system. (5)

Answers to Above Questions on Managerial Accounting

Answer 1:The allocation of join cost can performed by the application of two important methods such as sales value method and the gross margin method. In case of sales method, the cost is allocated on the basis of relative sales values of the individual product various in case of gross margin method, the joint cost is allocated on the basis of relative gross margins of the individual product.

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