Mabwetuba Limited is planning to make 120,000 units per period of a new product. The SECTION A . ATTEMPT ALL (40 MARKS) QUESTION ONE: 25 MARKS following standards have been set: Per unit Direct material A 1.2 kg at K11 per kg 4.7 kg at K6 per kg Direct material B Direct labour: Operation 1 42 minutes Operation 2 37 minutes Operation 3 11 minutes Selling price K120.00 Overheads are absorbed at the rate of K30 per labour hour. All direct operatives are paid at the rate of K8 per hour. Attainable work hours are less than clock hours, so the 500 direct operatives have been budgeted for 400 hours each in the period. Actual results for the period were: Production 126,000 units Direct labour cost K1,700,000 for 215,000 clock hours Material A cost K1,650,000 for 150,000 kgs Material B cost K3,600,000 for 590,000 kgs Required: (a) Calculate the standard cost and profit for one unit. (6 marks) (b) Calculate the labour rate variance and a realistic efficiency variance. (5 marks) (c) Calculate the material price and usage variances. (6 marks) (d) Explain some of the causes of adverse material and usage variances. (4 marks) (e) Explain the four principal uses of standard costing (4 marks) [Total 25 marks] and matches for its mainly rural market. The company has increasingly lost its market QUESTION TWO : 25 MARKS Candle Light Limited uses a single plant and production process to manufacture its candle due to its high prices compared to similar products imported from South Africa. Further investigation has revealed that Candle Light Limited uses the traditional absorption costing system based on a direct labour hour rate which has not provided accurate information as a basis of pricing products. The managing Director has heard that in South Africa many companies are now using activity based costing because of its advantages in costing products of diverse manufacturing. The Managing Director now proposes a cost reduction scheme that will hopefully improve the pricing decision. Initially the company will embark on a project to replace the existing system of allocating overhead costs on a volume based criteria to one by which overheads are traced to products according to what causes or drives them. Required to: (a) You are to draft notes to the Managing Director stating the main benefits of Activity Based Costing. (4 marks) (b) An extract of production data for these products for the period ending March 2021 has been given to you as below: Quantities Produced (units) Direct Labour hours per unit Machine hours per unit Set-ups in the period Order handled in the period Matches Candle 5,000 7,000 1 2 3 1 10 40 15 60 Overhead Costs: Relating to machine activity 20,000 relating to production run set-ups 20,000 Relating to handling of orders 45,000 85,000 You are required to calculate the production overheads to be absorbed by one unit of each of the products using: (0) The existing method for the absorption of overhead costs and; (6 marks) An approach which recognizes the cost drivers revealed in the activity based costing (11 marks) (c) A cost accounting system has many purposes. List the main purposes of a cost accounting system (4 marks) [Total 25 marks]