SECTION B: MANAGEMENT ACCOUNTING

Question 1 [20 marks]

You oversee the production facility of CC Compounders Ltd. CC Compounders Ltd manufactures compound which is being used in various extrusion processes. You are preparing for a management meeting. One of the points on the agenda is the explanation of the variance between actual production cost and standard production cost and to decide on action plans to address the reasons for the variance. The following is the standard cost per 1 ton of compound:

	Per Unit	Price	Standard Cost per ton (R)
Material: AC1032 Powder	175kg	R 3.75/kg	656.25
Labour: Mixing Department	1.5 Hours	R125/hour	187.50
Overheads: Overheads are allocated based on actual labour hours.		175.00/hour	262.50
Total standard cost per unit			1,106.25

Budgeted fixed costs amounts to R175,000 per month. The cost clerk provided you with the following actual information for the month.

	Per Unit	Price	Total cost
Material: AC1032 Powder	185	R3.50/kg	809,375
Labour	2	R126.50/hour	316,250
Overheads			365,219
Fixed Costs			169,000

Production for the month was 1,250 units of compound. Required: 1. Use standard cost variance analysis to analyse and explain the manufacturing variance. (Show all your calculations as method marks are being awarded) (18) 2. Identify the two most important areas for management to focus on. Support your suggestion with reference to the relevant variance in point 1. (2)

Question 2 [12 marks] Blue Shade wants to launch a new product called Shady Blue in the market. The sales manager needs to present the opportunity to management. He approaches you to assist him in calculating the required information. He provides you with the following information.

Purchase price of the product	R125,50 per unit
Packaging cost	R10,00 per unit
Labour needed to wrap the product before it can be delivered. (The product must be wrapped and cannot be sold without the wrapping)	Wrap 2 products per hour. The employees will be paid R160 per day. The company work a 8 hour day. The employees will be utilised somewhere else f there are no products to be wrapped
A supervisor needs to be appointed at a monthly cost of R15,000.
Delivery cost to the wholesalers will be charged at R300 per 10 units delivered.
Additional space will be rented at R5,000 per month.
Additional general administration expenses will amount to R2,500 per month

Required: Assist the sales manager in calculating the following: 1. The estimated sales price per unit. The companys policy is a mark-up of 65% on variable cost. (5) 2. The contribution per unit. (1) 3. Break-even units to be sold to cover the additional costs. (1) 4. The number of units to be sold to achieve a profit before tax of 20% of the sales value. (2) 5. The number of units to be sold to achieve a profit after tax of 15% of the sales value. The tax rate is 28%. (3)

Question 3: [18 marks] You need to prepare the budget for Yellow tree for the quarter ending June 2018. The budget must be prepared monthly. The quarter consists of 13 weeks. The forecasted sales are as follows:

	April 4 weeks	May 5 weeks	June 4 weeks	July 4 weeks
Sales Units	1,250	1,500	1,750	1,800

The companys policy changed the inventory policy to keep closing inventory of completed units at 25% of the following months sales. Opening inventory on the 1st of April was 475 units. The labour information is as follows:

Normal working hours	8 hours per day
Weekend work	None, only if overtime is required.
Number of employees	20 currently Additional 10 employees will be employed for the month of June
Normal time rate	R32.50 per hour
Overtime rate	30% above normal time rate per hour
Hours per unit	3 hours

Required: 1. Calculate the production budget for the quarter. (3) 2. Calculate the budgeted labour hours per month. Split the hours between normal time and overtime. (9) 3. Calculate the budgeted labour cost monthly. Split the cost between normal time and overtime. (6)