QUESTION 1 (32 marks)

MoneyMakers (Pty) Ltd, manufactures Product D which passes through two processes, namely process X and process Y. Material is introduced at the start of process X and additional material is added to process Y when the process is 80% complete. Conversion costs are applied uniformly throughout both processes. The closing work in progress (“WIP”) is estimated to be 60% for both processes. Assume that the production information for process Y, for the month of June 2023, is the following:

Production units:  
Opening inventory 2 000
Units introduced during the period 11 000
Closing inventory 3 000
Opening WIP production costs: Rand
Opening inventory WIP 105 000
Costs from previous Process X 50 000
Direct Material 35 000
Conversion 20 000


Costs incurred during the month of June: 255 000
Transferred from Process X 150 000
Direct material 65 000
Conversion 40 000


Prepare the process cost report using the weighted average method.

Prepare the quantity statement (with the equivalent units). (13 marks)
Prepare the cost statement. (9 marks)
Prepare the cost allocation statement. (10 marks)

Tabulate your answers as far as possible.
Show and reference all your calculations clearly.

QUESTION 2 (30 marks)

Game Ltd manufactures and sells product X. The following information is available for Game Ltd’s financial year ending 31 December 2023:

Actual information:
Opening Inventory Direct costing R54 000 (6 000 Units)
Opening Inventory Absorption costing R85 500 (6 000 Units)
Units manufactured   36 000
Sales   R800 000
Sales units   34 000
Direct material   R5 per unit
Other variable production costs   R4 per unit
Sales commission cost   R1,50 per unit
Variable admin cost   R0,50 per unit
Total Fixed production cost   R160 000
Total Fixed Selling and Admin costs   R130 000

Budgeted information:

Fixed production overheads   R168 000
Budgeted units   32 000

Additional information:
Game Ltd values inventory using the First in First out (“FIFO”) method.


Prepare the actual net profit statement using the direct costing method.(13 marks)

Prepare the actual net profit statement using the absorption costing method.(14 marks)

Discuss the effect on profit between the two methods (Direct costing and Absorption costing) in each of the following scenarios:
Production equals Sales units
Production exceeds Sales units
Sales exceeds Production units (3 marks)

QUESTION 3 (32 marks)

Sheep Coats Ltd manufactures wool coats. The company uses a standard costing method. The information below applies to the activities of Sheep Coats Ltd for the financial year ended 31 March 2023.

The actual production is 6 000 units and costs in Rands for the period were as follow:

Cost component R
Direct material 8 400 metres @ R22 per metre 184 800
Direct labour 4 000 hours @ R20 per hour 80 000
Variable manufacturing overheads 4 000 hours @ R7,50 per hour 30 000
Fixed manufacturing overheads   45 000

There is no change in the opening and closing inventory of material. Accordingly, the quantity purchased equals the quantity used.

The standard cost card for the wool coats is as follow:

  Time Rands
Direct material   1.3 metres; R20 per metre
Direct labour 42 minutes R18 per hour
Variable manufacturing overheads 42 minutes R8 per hour
Fixed manufacturing overheads   R6 per unit

The normal production is 7 000 units per annum.


Prepare the total standard cost per unit. (5 marks)

Prepare a flexible budget based on the information provided as well as your answers in 3.1.(4 marks)

Calculate the following variances and clearly indicate for each variance whether it is a favourable or an unfavourable variance:
Direct material variances (Price and Usage) (6 marks)
Direct labour variances (Rate and Efficiency) (6 marks)
Variable manufacturing overhead variances (Rate and Efficiency) (6 marks)
Fixed manufacturing overhead variances (Expenditure and Volume)(5 marks)
QUESTION 4 (6 marks)

Discuss why a flexible budget is useful in an organisation. (4 marks)

Explain the difference between a master budget and a cash budget. (2 marks)

Answers on Above Questions on Financial Management

Answer 1: The process cost report using the weighted average method is calculated as follows:


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