Answer ALL questions. [20 marks]

Seiko Manufacturers is expected to commence business on 01 July 2020, making smart

watches. The budgeted figures for July 2020 (Question 1) and August 2020 (Question 2)

are provided below. You are expected to assist Seiko Manufacturers in its planning phase

by undertaking CVP analysis and preparing an income statement using absorption costing.

Question 1 (10 marks)

Information

The following information was extracted from the budget of Seiko Manufacturers for the

month ended 31 July 2020.

Estimated production and sales

Selling price per watch

Variable manufacturing costs per watch:

- Direct materials

- Direct labour

- Overheads

Fixed manufacturing overheads

Marketing and administrative costs:

Fixed costs

Variable costs

3 000 units

R900

R270

R180

R90

R282 000

R150 000

10% of sales

MODULE MANAGEMENT ACCOUNTING

TOTAL MARKS 20 MARKS

Required

Answer each of the following questions independently from the information given above:

1.1

Calculate the break-even quantity.

(3 marks)

1.2

Calculate the target sales value using the marginal income ratio, if a profit of R600 000 is desired.

(3 marks)

1.3

The sales manager made the following proposal to increase profitability:

Decrease the selling price by R40 per unit and increase advertising expense by R24 000 with the expectation that sales volume will increase by 10%.

Should the sales manager's proposal be accepted? Motivate your answer with the relevant calculations.

(4 marks)

Question 2

(10 marks)

Information

The financial manager of Seiko Manufacturers provided the following budgeted information for the month ended 31 August 2020:

Estimated production

Estimated sales

Selling price per watch

Variable manufacturing costs per watch

Fixed manufacturing overheads

Marketing and administrative costs:

Fixed costs

Variable costs per watch sold

5 000 units

4 500 units

R900

R550

R300 000

R150 000

R100

Required

Prepare the Income Statement for the month ended 31 August 2020 using the absorption costing method.

END OF PAPER