1 (50 marks) Umgodla (Pty) Ltd was founded by Nonceba, who is an accomplished artisan and the sole director of the company. The company makes high fashion hand-made handbags and has been supplying these handbags to the Western Cape market for the past two years. The process of manufacturing starts with creating the body of the handbag. The handbag is made from the one and a half (1,5) metres piece of leather, which is consistent in colour, by cutting out five basic sections of the bag - the front, the back, the sides and the bottom. To cut out the parts and to ensure that all handbags have the same size, the artisans use special patterns. The sections are stitched together by hand, starting from sewing the front, back and sides to the bottom and then stitching all of the parts together. The one (1) metre polyester lining fabric is stitched to the interior of the bag and sewn together with the sides and the bottom. The strap of the handbag is also made of leather. The leather straps are then stitched to the bag. In the financial year under review, Umgodla (Pty) Ltd purchased leather locally at a cost of R140 per metre. Indirect material is also purchased locally. Umgodla (Pty) Ltd imports all the polyester lining that is required for making the handbag from a supplier in India. When the company started making handbag the exchange rate between the South African rand (R) and the US Dollar ($) was R13,50 for $1. Since then the value of the rand has deteriorated to the extent that currently, the exchange rate is R16,00 for $1. This has resulted in an increase in the total purchase price for the current year to R100 300. Total shipping charges and import duties during the year 01 July 2020 to 30 June 2021 amounted to R5 900. Inventories at the beginning and end of the financial year under review were as follows: Leather Polyester lining fabric Finished Goods (handbags) Work in progress The company uses a FIFO cost formula. 01 July 2020 200 metres @ R130 150 metres @ R 76 60 units @ R795 30 June 2021 140 metres 130 metres 100 units The value of indirect materials on hand on 01 July 2020 was R2 100 and on 30 June 2021 was R2 800. The total value of indirect materials used in production during the year was R10 200. In addition to the founder who occupies the role of the factory supervisor, Umgodla (Pty) Ltd employs four (4) employees and they are all involved in the production of handbags. During the year the handbags started and completed by the workers were as follows: Busi 400 Dimpho 300 Aluwani 250 250 Kwanda It takes one person 7 hours and 30 minutes to make one handbag. The company pays each employee R45 per hour for making the handbag. The factory supervisor earns R15 000 per month. At the end of the financial year, the company pays its sole director 10% of net income, remaining after accounting for all expenses, as a bonus. For the handbag-making business, Umgodla (Pty) Ltd hires a building in George and the company pays R9 000 per month as rent for the facility. The rent includes the cost of electricity and water. The company also insures the building against fire and theft for R800 per month. One handbag is sold for R970. 5 REQUIRED: 1.1 Identify one major risk that Umgodla (Pty) Ltd is facing. (1) 1.2 How many finished handbags were sold during the year? (3) 1.3 1.4 How many metres of the leather and polyester lining were purchased during the year? Calculate the total cost of the leather that was used in production during the year. (4) (2) 1.5 Calculate the total cost of the polyester lining that was used in production during the year. (5) 1.6 Calculate the total cost of the labour of the four employees during the year. 1.7 Calculate the total cost of the indirect materials (variable production overhea during the year. 1.8 Calculate the total fixed production overheads for the year. 1.9 Apply an actual costing base and use your answers to questions 1.4 to 1.8 to calculate the cost of one handbag. (6) 5 QUESTION 3 (12 marks) The following information is relevant to Majakathata (Pty) Limited: Majakathata (Pty) Limited Statement of profit and loss for the year ended 31 December 2021 2021 2020 R R Sales 2 300 000 1 160 000 Less: cost of sales 1 610 000 1 120 000 Gross margin 690.000 480 000 Distribution costs 120 000 80 000 Administrative expenses 150 000 140 000 Profit from operations 420 000 260 000 Interest expense Income before tax 50 000 60 000 370 000 200 000 Income tax Net profit for the period 111 000 60 000 259 000 140 000 Majakathata (Pty) Limited Statement of financial position for the years ended 31 December 2021 and 2020 8 Assets 2021 R 2020 R Current assets Inventories Trade receivables Cash and cash equivalents Prepayments Non-current assets Plant and equipment Total assets 300 000 300 000 280 000 220 000 280 000 280 000 100 000 120 000 3 080 000 3 000 000 4 040 000 3 920 000 Equity and liabilities Capital and reserves R Issued capital 1 270 000 R 1 300 000 Accumulated profit 1 600 000 1 320 000 Non-current liabilities Interest bearing borrowing 750 000 800 000 Current liabilities Trade payables 420 000 4 040 000 500 000 3 920 000 MAC1501/1 8 REQUIRED: 3.1 Using the information provided above calculate the following ratios for 2021 and 2020. 3.1.1 Current ratio 3.1.2 Debt ratio 3.1.3 Operating profit margin 3.1.4 Debtors collection period 3.2 Comment on the results of the ratios calculated in 3.1.2 and 3.1.4 22 (2) (2) QUESTION 3 (12 marks) The following information is relevant to Majakathata (Pty) Limited: Majakathata (Pty) Limited Statement of profit and loss for the year ended 31 December 2021 2021 2020 R R Sales 2 300 000 1 160 000 Less: cost of sales 1 610 000 1 120 000 Gross margin 690.000 480 000 Distribution costs 120 000 80 000 Administrative expenses 150 000 140 000 Profit from operations 420 000 260 000 Interest expense Income before tax 50 000 60 000 370 000 200 000 Income tax Net profit for the period 111 000 60 000 259 000 140 000 Majakathata (Pty) Limited Statement of financial position for the years ended 31 December 2021 and 2020 8 Assets Current assets Inventories Trade receivables Cash and cash equivalents Prepayments Non-current assets Plant and equipment Total assets Equity and liabilities 2021 R 2020 R 300 000 300 000 280 000 220 000 280 000 280 000 100 000 120 000 3 080 000 3 000 000 4 040 000 3 920 000 Capital and reserves R Issued capital 1 270 000 R 1 300 000 Accumulated profit 1 600 000 1 320 000 Non-current liabilities Interest bearing borrowing 750 000 800 000 Current liabilities Trade payables 420 000 4 040 000 500 000 3 920 000 MAC1501/1 8 REQUIRED: 3.1 Using the information provided above calculate the following ratios for 2021 and 2020. 3.1.1 Current ratio 3.1.2 Debt ratio 3.1.3 Operating profit margin 3.1.4 Debtors collection period 3.2 Comment on the results of the ratios calculated in 3.1.2 and 3.1.4 22 (2) (2)