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QUESTION 1 (35 MARKS) Mr. Smith chairman of Mpapela Manufacturing Company gave his son full responsibility for the operations of one of the business' as from 1 September 2020. The company manufactures metal frames. Mr. Smith however, is very concerned about the ability of his son in running the operation, as the income statement for the month ended 30 September 2020 reveals that he has failed to meet the budgeted prot target of R6 000 even though he has exceeded sales volume by 200 frames and selling price by R1.00 per unit. Budget Income Statement for the month of September 2020 Sales: R R 2 000 frames at R36 72 000 Production costs: Material 18 000 Labour variable 22 000 Manufacturing overhead 16 000 56 000 56 000 Gross prot 16 000 Selling and administration (40% variable) 10 000 Profit R 6 000 Budget break-even = 1 400 units Standard cost per unit at the budget level of 2 000 sales units Material: Metal 3 units @ R200 6 Welding 1 unit @ R300 3 Labour: 30 minutes @ R22 per hour 11 Prime cost 2 Manufacturing overhead Total cost of manufacture R28 Mr. Smith explained that at the beginning of the year, his son had prepared a "Profit graph" which showed for various levels of volume what his plant sales revenue, various categories of expense and profit should be. \"It appears to me that an increase above the budget sales of 2 000 units should have increased the prot substantially. As you can see, he has managed to exceed budgeted sales volume and raise the selling price on the frames by R1. Not only that, he looked around until he found a fellow who would sell us welding rods at a lower price. Regardless of these facts, he still has not managed to achieve the target prot. Actual results for the month of September Sales 2 200 units at R37 per unit Opening stock 400 units Actual production 2 000 units Actual costs for September 4} Manufacturing overhead _\\. 0') O D C) 56 000 56 000 Gross prot 16 000 Selling and administration (40% variable) 10 000 Profit R 6 000 Budget break-even = 1 400 units Standard cost per unit at the budget level of 2 000 sales units R Material: Metal 3 units @ R200 6 Welding 1 unit @ R300 3 Labour: 30 minutes @ R22 per hour Prime cost 20 Manufacturing overhead _8 Total cost of manufacture R23 Mr. Smith explained that at the beginning of the year, his son had prepared a "Profit graph" which showed for various levels of volume what his plant sales revenue, various categories of expense and profit should be. \"It appears to me that an increase above the budget sales of 2 000 units should have increased the prot substantially. As you can see, he has managed to exceed budgeted sales volume and raise the selling price on the frames by R1. Not only that, he looked around until he found a fellow who would sell us welding rods at a lower price. Regardless of these facts, he still has not managed to achieve the target prot. Actual results for the month of September Sales 2 200 units at R37 per unit Opening stock 400 units Actual production 2 000 units Actual costs for September Raw Materials R Metal 6 500 units 13 000 Welding 3 250 units 7 475 Labour 1 200 hours 25 200 Manufacturing overhead Variable - 10% higher than budget cost Fixed - 5 000 Selling and administration 11 500 The company operates a standard variable costing system. The opening stock of 400 units of nished product was valued at current standards. There was no opening or closing stock of raw material in the month of September. REQUIRED: a) Prepare a statement showing the actual profit for the month of September. (15) b) Reconcile the budget prot to the actual profit as calculated by you in (a) above. Your reconciliation must show the variances in as much detail as possible. (19) 4}