Question
Topics: Material and Inventory control Labour costs Classification and analysis of overheads Cost flows and manufacturing companies Question 1 (25 Marks) The following information for
Topics:
Material and Inventory control
Labour costs
Classification and analysis of overheads
Cost flows and manufacturing companies
Question 1 (25 Marks)
The following information for July and August were extracted from the costing records of Venus CC:
JulyAugust
Production and sales (units)12 00010000
RR
Costs:
Direct material270 000225 000
Direct labour360 000300 000
Factory overhead360 000331 500
Marketing expenses93 00087 000
Administrative expenses153 000144 000
At the beginning of September, it was estimated that production for that month would be either 13 000 or 14 000 units.
REQUIRED
1. Draw up the flexible budget for September based on
13 000 and 14 000 units. (15)
2. At the end of September the cost records revealed that the following costs/expenses were incurred in producing and selling
13 500 units:
R
Direct material302 400
Direct labour400 500
Factory overhead425 250
Marketing expenses108 450
Administrative expenses180 900
Draw up a variance analysis report for September and indicate next to each variance whether it is favourable or unfavourable.(10)
Question 2 (25 Marks)
The following budgeted figures have been taken from the cost records of Ace Ltd:
Production units9 00012 000
Capacity level75%100%
RR
Sales1 035 0001 380 000
Direct material (@ R5 per kg)180 000240 000
Direct labour (@ R20 per hour)225 000300 000
Factory overheads300 000330 000
Selling and administrative expenses180 000192 000
Normal capacity is equal to 12 000 units. As a result of the poor economic conditions the budget for February 2015 has been set at 80% of normal capacity. The company uses the absorption costing method for internal reporting purposes.
The following variance report for February 2015 has been presented to management of the production department:
Fixed
Budget
Actual
Results
Variance
Production units
10 000
9 000
Sales units
10 000
9 000
R
R
R
Sales
1 150 000
1 056 700
93 300 (a)
Material
200 000
188 100
11 900 (f)
Direct labour
250 000
236 250
13 750 (f)
Factory overhead
300 000
310 600
10 600 (u)
Selling and administrative expenses
180 000
208 200
28 200 (u)
Net profit
220 000
113 550
106 450 (u)
Required:
a) Discuss how a flexible budget can be used when exercising cost control. (5)
b) Critically discuss the format and content of the variance report for February 2015 as presented
to the department.
Prepare an alternative variance report for the department that would be more meaningful to management
Question 3 (25 Marks)
The following information is applicable to Shine Wholesalers:
Budgeted sales
JulyR105000
AugustR132000
SeptemberR165000
Cash sales amount to 20% of total sales.
55% of credit sales are collected in the month of sale, with a discount of 10% those debtors who pay during this time. The remaining outstanding credit sales are collected in equal instalments over next two months. In October, the sales are expected to increase by 20% when compared to September. There are no bad debts.
Purchases of raw materials and sales in October will be at the same ratio as in September. Shine Wholesalers is allowed two month's credit on purchases of raw materials. 40% of purchases are paid in the month following purchase and the rest in the second month after purchase.
Purchases of raw materials are expected to as follows:
JuneR55000
July R68000
AugustR85000
SeptemberR105000
Wages and salaries are paid to employees at the end of the month in which they were earned. Salaries and wages are expected to be:
JuneR22200
JulyR20500
AugustR23500
SeptemberR26500
OctoberR28000
Rent amounts to R48000 per annum. All other overheads amount to R38160 per annum, which includes R1875 depreciation on equipment, bought on 1 July 20x20 for R75000. This amount is expected to be paid off in three equal monthly instalments, commencing on 1 August 20x20. Rental expenses and overheads expenses are expected to accrue evenly throughout the financial year.
Overdraft facilities are available. The opening bank balance on 1 September 20x20 amounted to R16800 (favourable).
Required:
Prepare columnar cash budget for September and October 20x20. Show all calculations. Round off to the nearest rand.
Question 4 (25 Marks)
Quail Limited is a retail distributor for computer hardware, related software and support services. The management accountant has prepared sales budgets for the first semester of 20x20. These are presented below:
Month
Total Sales
January
R550 000
February
R500 000
March
R480 000
April
R400 000
May
R425 000
June
R600 000
Cash sales amount to 25% of the total sales. Collections of the credit sales are as follows:
40% in the month of sale and it is subject to a 4% discount
30% one month after the month of sale
28% two months after the month of sale
2% in uncollectable
Quail Limited's inventory requirements are equal to 30% of the next month's sales. The purchasers' terms of payment require a down payment of 45% and the balance is payable 30 days thereafter. July's total sales are expected to be R620000. Quail Limited had a bank overdraft of R150000 on 1 May 20x20.
Required:
Prepare cash budget for Quail Limited by month for May and June 20x20. Show all your calculations.
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