Page $5$ of $7$

MAC$3761$

Test $1/$April $2023$

QUESTION $1$

$(40$ Marks; $75$ Minutes$)$

Skwama Bags $($Pty$)$ Ltd $("$Skwama$")$ manufactures and sells different types of bags to boutique clothing and accessory shops across South Africa. Ms Skhosana, owner$-$manager of the business, started selling hand$-$made bags of different shapes and sizes in her hometown of Mokopane and expanded Skwama gradually over the course of ten years into a well$-$known brand. A portion of the production work is now automated, but Ms Skhosana retained the "human touch" to some extent to stay aligned with customer preferences and to develop sewing skills in various communities across the country. Skwama uses an absorption costing system; applies the first$-$in$-$first$-$out $($FIFO$)$ method to value all its inventories; and has a $31$ March year$-$end.

Skwama's product range consists of three product types, namely make$-$up bags $("$MakeB$\text{'}$s$"),$ drawstring shoe bags $("$DrawB$\text{'}$s$")$ and shoulder sling bags $($ShoulderB$\text{'}$s$).$ Although each product type is available in a variety of colours and with some design differences, such as in terms of zips $($also called "zippers" or "zip fasteners"$),$ location and shape of pockets, and finishes, the production cost of each bag of a specific product type is deemed to be the same. In other words, the production costs of all MakeB's are equal; the production costs of all DrawB's are equal; and the production costs of all ShoulderB's are equal, but there are differences between the production costs of a MakeB and a DrawB and a ShoulderB. No opening inventory of any materials, work$-$in$-$progress or finished goods existed as at $1$ April $2022.$

EXTRACTS FROM INFORMATION RELATING TO BUDGETS PREPARED FOR THE $2023$ FINANCIAL YEAR $("$FY$2023")$:

$1\mathrm{.}1.$ Budgeted sales units for FY$2023$ are in line with the demand for the products. Skwama's production budget shows that there were no required finished goods inventory at the end of FY$2023.$ Budgeted sales units and selling prices for FY$2023$ were as follows:

$\backslash$table$[[$Product type,$\backslash$table$[[$Units to be$],[$produced$],[$and sold$]],\backslash$table$[[$Selling price$],[$per unit$]]],[$MakeB$,18000,$R$65],[$DrawB$,45000,$R$50],[$ShoulderB$,27000,$R$80]]$

$1\mathrm{.}2.$ Budgeted prime costs for FY$2023$ were estimated at the following amounts per product:

$\backslash$table$[[$Cost item,Note,$\backslash$table$[[$MakeB$],[($R per unit$)]],\backslash$table$[[$DrawB$],[($R per unit$)]],\backslash$table$[[$ShoulderB$],[($R per unit$)]]],[$Direct materials,$1\mathrm{.}2\mathrm{.}1,16,00,19,00,30,00],[$Direct labour,$1\mathrm{.}2\mathrm{.}2,10,80,?,?$

Page $6$ of $7$

MAC$3761$

Test $1/$April $2023$

appropriate activity levels, and then adjusting for expected price increases, if any. The variable selling cost per unit is the same for all product types. Variable selling cost per unit was expected to increase by $4\%$ in FY$2023.$ In estimating the selling costs for FY$2023,$ the following actual selling cost information for the $2022$ financial year $("$FY$2022")$ was used as a starting point:

$\backslash$table$[[\backslash$table$[[$Quarter of$],[$FY$2022]],$Total units sold,Total selling costs$],[1,18000,$R$128000],[2,17500,$R$130000],[3,22000,$R$148000],[4,25000,$R$161875]]$

$1\mathrm{.}6.$ Budgeted fixed administrative costs for FY$2023$ were R$118000.$

$2.$ EXTRACT FROM THE ACTUAL INFORMATION FOR THE $2023$ FINANCIAL YEAR:

The following actual income statement $($statement of profit or loss and other comprehensive income$)$ was prepared for MakeB ONLY:

$\backslash$table$[[$Details$,$Note,R$],[$Sales$,2\mathrm{.}1,1020000],[$Less: Cost of sales,$2\mathrm{.}1,?$