Question 3

Jake's (Pty) Ltd manufactures rubber balls. The following costs were incurred during August 2020.

Rubber R10 per kg

Factory Worker R30 per hour

Rental of building R16 000 per month

Electricity R9 700 per month

Depreciation on factory machinery R3 300 per month

Production manager salary R21 500 per month

Sales commission 2.5% on sales value

Sales price R20 per ball

Additional information:

• 0.5 kg rubber is needed to manufacture one ball.
• One factory worker is employed and paid on a per hour basis.
• The factory worker can manufacture 60 balls, in total, in an hour.
• 75% of the building is used as a factory and the rest of the building is used as offices.
• Electricity is a mixed cost. The total fixed cost was determined as R1 200 per month. The total fixed cost and 70% of the variable cost will be allocated to the factory.
• Finished goods inventory on 1 August (valued at R10 per ball, using the absorption costing method, including fixed manufacturing overhead of R4 per ball) was 3 000 balls.
• Finished goods inventory on 31 August was 2 000 balls.
• Actual production during August amounted to 9 600 balls.
• The company uses FIFO method to value inventory.
• Fixed manufacturing overhead is recovered on the basis of units produced.
• The company closes the over or under applied overhead directly to costs of goods sold.

The budget for 2020 reflected the following:

• Production, 115 200 balls.
• Fixed manufacturing overheads, R527 400

REQUIRED:

3.1 Calculate the manufacturing cost per ball using the absorption costing method.

3.2 Prepare the income statement for August 2020 using the absorption costing method.

3.3 Prepare the income statement for August 2020 using the direct costing method.

When calculating do you use the Actual Production or the Budgeted