MAC2601 ASSIGNMENT 2 OF 2022

MAC2601 ASSIGNMENT 2 – SEMESTER 1 OF
2022
(a) Total normal annual production capacity = (3 000 + 2 000)
= 5 000 𝑢𝑛i𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹i𝗑𝑒𝑑 𝑀𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟i𝑛𝑔 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑
Overhead Absorption Rate =
𝑁𝑜𝑟𝑚𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡i𝑜𝑛 𝐶𝑎𝑝𝑎𝑐i𝑡𝑦

300 000 000
=
5 000

= 𝑅60 000 𝑝𝑒𝑟 𝑢𝑛i𝑡

Calculation of Over / Under absorption

R
Depreciation for construction equipment 137 500 000
Construction equipment insurance 62 500 000
Indirect labour (Project managers` salaries) 75 000000
Total actual fixed manufacturing overheads 275 000 000
Absorbed overheads (60 000 * 4 000) (240 000 000)
Under absorption 35 000 000


Journal entry

DR CR
R R
Cost of Sales 35 000 000
Manufacturing overheads 35 000 000
Accounting for under applied overheads


(b) Possible causes of over / under applied overheads

➢ The budgeted overhead application rates were incorrectly predetermined;
➢ The total actual overheads are more or less than what was budgeted for;
➢ The activity in the basis used for allocation (the denominator) is higher or lower
than estimated.




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, (c) Actual Direct Costing Statement for Project Garnet for the year ended 28
February 2022

R
Sales (1 875 000 * 2 375) 4 453 125 000
Less Cost of Sales (2 980 900 000)
Opening inventory 190 000 000
Add Production Cost 3 622 500 000
Direct material (625 000 * 2 875) 1 796 875 000
Direct labour (575 000 * 2 875) 1 653 125 000
Fixed manufacturing overheads (60 000 * 2 875) 172 500 000

Less Closing Inventory (2) (831 600 000)
Gross Profit 1 472 225 000
Less Expenses (779 296 875)
Commission (17.5% * 4 453 125 000) 779 296 875

Net Profit 692 928 125


Calculations

1. Production units of project Garnet = (4 000 − 1 125) = 2 875 𝑢𝑛i𝑡𝑠

2. Closing inventory units = (160 + 2 875 − 2 375) = 660

660
Closing inventory = ( * 3 622 500 000)
2 875
= 831 600 000

(d) Increase in the sale of apartments

i) Remain constant
ii) Remain constant
iii) Increase




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