MAC 2601 MEMO
MAY/JUNE 2017
QUESTION ONE (1)
(1a)
Statement of comprehensive income for Exotic Limited for May and June 2016
May June
R R
Sales (R500 X 500) ,(R500 X 750) 250 000 375 000
Less :Manufacturing cost of sales 147 500 221 250
Opening inventory 32 250
Manufacturing cost:
Direct materials (650 x R110),(600 x R110) 71 500 66 000
Direct Labor (650 x R75),(600 x R75) 48 750 45 000
Variable overheads (650 x R30),(600 x R30) 19 500 18 000
Cost of goods available for sale 139 750 161 250
Less closing stock(150 units x R215), (0 units x R215) 32 250 0
Variable Manufacturing cost of sales 107 500 161 250
Add :Variable selling cost (500 units x R80), (750 units x 40 000 60 000
R80)
Contribution 102 500 153 750
Less Fixed costs 70 000 70 000
Manufacturing overheads 60 000 60 000
Selling and administrative costs 10 000 10 000
Net profit before tax 52 500 83 750
Closing stock units = Opening stock +Production units less Sales units
May = 0 + 650 -500 = 150 units
June = 150 +600 – 750 =0
Unit cost = Cost of goods produced in the current period / units produced
MAY = 139 750/650 units =R215 per unit
June = (r161 250 –r32 250)/600 units = R215
, Variable selling and administration costs:
High-Low method
High Low
Month June May Change
Costs R 70 000 R 50 000 R20 000
Sales units 500 750 250
Variable cost = (R20 000/250) = r80 per unit
(1b)
New value of closing inventory:
New value of closing inventory will include fixed manufacturing overhead.
May 2016 :
Direct costing value R32 250
Fixed manufacturing overhead (60 000/650) X 150 units R13 846
Absorption costing value 46 096
Closing stock has increased by R13 846 and cost of sales will decrease by the same amount resulting in
Net profit before tax will increase by the same amount. For this reason, the absorption costing net
profit will be ( R52 500 + R13 846) =R66 346
(1c)
Advantages
Operating results can be presented in a readily understandable form.
Operating results calculated according to the direct costing method are of particular
importance to management especially in terms of:
the effect of changes of output volume and product mix on the organisation’s
profitability;
MAY/JUNE 2017
QUESTION ONE (1)
(1a)
Statement of comprehensive income for Exotic Limited for May and June 2016
May June
R R
Sales (R500 X 500) ,(R500 X 750) 250 000 375 000
Less :Manufacturing cost of sales 147 500 221 250
Opening inventory 32 250
Manufacturing cost:
Direct materials (650 x R110),(600 x R110) 71 500 66 000
Direct Labor (650 x R75),(600 x R75) 48 750 45 000
Variable overheads (650 x R30),(600 x R30) 19 500 18 000
Cost of goods available for sale 139 750 161 250
Less closing stock(150 units x R215), (0 units x R215) 32 250 0
Variable Manufacturing cost of sales 107 500 161 250
Add :Variable selling cost (500 units x R80), (750 units x 40 000 60 000
R80)
Contribution 102 500 153 750
Less Fixed costs 70 000 70 000
Manufacturing overheads 60 000 60 000
Selling and administrative costs 10 000 10 000
Net profit before tax 52 500 83 750
Closing stock units = Opening stock +Production units less Sales units
May = 0 + 650 -500 = 150 units
June = 150 +600 – 750 =0
Unit cost = Cost of goods produced in the current period / units produced
MAY = 139 750/650 units =R215 per unit
June = (r161 250 –r32 250)/600 units = R215
, Variable selling and administration costs:
High-Low method
High Low
Month June May Change
Costs R 70 000 R 50 000 R20 000
Sales units 500 750 250
Variable cost = (R20 000/250) = r80 per unit
(1b)
New value of closing inventory:
New value of closing inventory will include fixed manufacturing overhead.
May 2016 :
Direct costing value R32 250
Fixed manufacturing overhead (60 000/650) X 150 units R13 846
Absorption costing value 46 096
Closing stock has increased by R13 846 and cost of sales will decrease by the same amount resulting in
Net profit before tax will increase by the same amount. For this reason, the absorption costing net
profit will be ( R52 500 + R13 846) =R66 346
(1c)
Advantages
Operating results can be presented in a readily understandable form.
Operating results calculated according to the direct costing method are of particular
importance to management especially in terms of:
the effect of changes of output volume and product mix on the organisation’s
profitability;
