FACULTY OF COMMERCE, MANAGEMENT AND LAW AAM3691/2022 Assignment 2 QUESTION 1 (30 MARKS) Lungameni Enterprises (Pty) Ltd ("Lungameni Enterprises") manufactures product A, which it sells to local customers at a mark-up of 25%. Lungameni Enterprises currently absorbs its overhead costs on the basis of direct labour hours. During the month of May 2021, production volume for product A was estimated at 1000 units. However, only 80% of production volume was achieved. As a standard practice, each unit of product A requires 0.5 hours at an hourly rate of N$8.50. The 80% production volume was produced at 45 minutes per unit, and at an hourly rate of N$8.00. Lungameni Enterprises buys its raw materials from a local supplier at N$3.50 per kilogram. Each unit requires 1.5 kilograms. Two kilograms were used per unit, and there was no change in price of raw materials. Total monthly budgeted manufacturing overhead costs amounted to N$950, whereas actual monthly manufacturing overhead costs amounted to N$1 200. As a cost reduction measure, Lungameni Enterprises' production manager is of the view that manufacturing overhead costs should be absorbed on the basis of direct labour cost. There was no opening inventory and all units produced were sold. REQUIRED: MARKS For the month of May 2021, on the basis of gross profit/(loss), do you agree with Lungameni Enterprises' production manager's recommendation? Show all your workings. 30 TOTAL MARKS FOR QUESTION 1 30 QUESTION 2 (26 MARKS) Sonja Cc is a small firm that makes outfits for customers tailored for their functions, in May 2021 she has orders for a baby shower (BS) and a bridal party (BP). The details for Job BS are as follows: Direct materials: 12 units at N$124. Direct labour: -20 hours for department A at N$25 per hour 10 hours for department B at N$30 per hour 12 hours for department C at N$27.5 per hour The firm allocates manufacturing overheads budgeted at N$2 500 in department A, NS2 000 in department B and N$3 000 in department C. The firm expects a profit of 55% on the total cost of BS. The details for Job (BP) are as follows: Direct materials: 10 units at N$108. Direct labour: 16 hours for department A 10 hours for department B 14 hours for department C The labour hours are budgeted at 40, 25 and 30 in departments A, B and C respectively. The firm expects a profit of 40% on the total cost of BP. REQUIRED MARKS 3.1 Calculate the predetermined overhead allocation rate (OAR) for each department using labour hours as a base for such allocation. 3 3.2 Calculate the cost of a bridal party (BP). 3.3 Calculate the Selling price of the bridal party (BP). 8 3 Page 14 of 15 FACULTY OF COMMERCE, MANAGEMENT AND LAW 3.4 Calculate the cost of a baby shower (BS). 3.5 Calculate the Selling price of a baby shower (BS). 8 3 3.6 If the number of outfits are the same for each type of function, which function should Sonja choose to produce and why? 1 TOTAL MARKS FOR QUESTION 2 26