TWO: 45 MARKS (Note you are required to answer each question in a separate answer book) sanitation), which it supplies domestically as well as to international markets. SDG Ltd manufactures an innovative product which addresses SDG6 (clean water and At the beginning of the 20X2 financial year the management accountant proposed a budget with an expected profit of R276 000 which was approved by the board of directors. Budgeted Income Statement for the year ending 31 March 20X2 Sales (10 000 units at R140 each) Direct variable production costs: Material: (100 000 kgs) Labour: (5 000 hours) Production overheads Fixed administration costs Budget profit R'000 R'000 1 400 410 200 400 114 1 124 276 To minimise its geographic footprint, SDG Ltd has a company policy of not holding stocks raw material or finished goods. The production overheads as reflected in the budget above have the following cost-volu relationship: - Budget Production (units) Budget Production cost 5.000 R350 000 10.000 15 000 R400 000 R450 000 The company's normal operating capacity is 10 000 units per annum. me actual income and costs have been finalised and presented to the board of director Actual Income Statement for the year ended 31 March 20X2 R'000 Sales 9 000 units @ R145/unit 1 305,0 Production costs: (12 000 units) Opening inventory Material 999,0 0,0 144 000 kgs @ R4.05 583,2 Labour 6 600 hours @ R38/hour 250,8 Variable production overheads Fixed production overheads 1Closing inventory 12 000 units @R9/unit 12 000 units @ R30/unit 108,0 360,0 (303,0) Normal gross profit 306,0 Over/(under) Recovery Actual gross profit Fixed administration costs 10,0 316,0 100,0 Net profit :Inventory is valued at standard cost 216,0 3 During the financial year ended 31 March 20X2, SDG Ltd produced 12 000 units but was only bottlenecks in global supply chains in the aftermath of the COVID-19 pandemic. The managing able to sell 9 000 units because an export order for 3 000 units fell through due to the director rejected the order, when the customer changed the terms of the original order and demanded a selling price of only R110. An extract of the fixed production overhead control account shows the following entry for the period under review: DR Fixed Production Overhead Control Account Actual expenditure Over recovery CR R350 000 Absorbed overhead 12 000 units x R30/unit = R360 000 R10 000 A cost variance report has also been compiled and tabled in support of the actual income statement: Cost Variance Report for year ended 31 March 20X2 11 Favourable R Adverse R Material Price (R4.10-R4.05) x (12 000 units x 12kgs) = 7 200 (SP-AP) x AQ Material Usage 12 000 units x (10 kgs - 12 kgs) x R4.10/kg = 98 400 (SQ-AQ) x SP Labour Rate (R40-R38) x (6 600 hours) = 13 200 (SR-AR) x AH Labour Efficiency (0.5 hours - 0.55 hours) x 12 000 units x R40 = 24 000 (SH-AH) x SR Variable POH Exp (R120 000 - R108 000) = 12 000 BFVO-AVO Fixed POH Exp BFO-AFO Fixed Admin Exp BFA - AFA TOTAL R300 000-R350 000 = 50 000 R100 000-R114 000 = 14 000 46 400 172 400 The managing director is concerned. As she says, "our actual profit is only R50 000 less than we budgeted. We didn't deliver the 3000 export units and the adverse variances are nearly four times the favourable variances. I was expecting a much lower net profit. Something is wrong. I need the figures to be looked at again". Required: a) calculate the budget break-even point and margin of safety in units for the year ending 31 March 20X2; (10 marks) b) determine the actual profit for the year ended 31 March 20X2, according to variable costing principles; (10 marks) F L DRILL reconcile the budget profit to the variable costing net profit derived in (b) above, according to the following format: Budget profit R'000 ?? Sales volume variance ?? Standard profit ?? Sales price variance ?? Net cost variances ?? Actual net profit ?? (6 mark d) calculate the profit or loss on the export order if it was accepted at R110 per unit. (4 mar O evaluate the company's performance identifying the major causes of the ov performance, and suggest possible reasons for the sales, material and labour varian In your report, you should also suggest how the management accounting inform system might be improved. (15 ma