October/November 2018
1(a)
PIZZA MARKET (pty) LTD
Budgeted Statement of comprehensive income for PIZZA MARKET (pty) LTD
for the year ending 31 September 2018 in accordance with direct costing principles
May
R
Sales 3 900 000
Less :Variable cost of sales 1 538 077
Opening inventory [R210 000 – (10 000 x R10)] 110 000
Manufacturing cost:
Direct materials (55 000 x R10) 550 000
Direct Labor (55 000 x R15 x 10/60) 137 500
Variable overheads (55 000 x R2,5) 137 500
Cost of goods available for sale 935 000
Less closing stock(5 000 units/65 000unitsx R935 000/1) 71 923
Variable Manufacturing cost of sales 863 077
Add :Variable selling cost (0,45 x R1 500 000) 675 000
Contribution 2 361 923
Less Fixed costs 1 425 000
Manufacturing overheads 600 000
Selling and administrative costs (0,55 x R1 500 000) 825 000
Net profit before tax 936 923
Closing stock units = Opening stock +Production units less Sales units
=10 000 + 55 000 -60 000 = 5 000 units
Based on Weighted average cost ,
Unit cost = Cost of goods available for sale / units available for sale
=R935 000/65 000 units =R14,38461538 per unit
, Closing stock value = Number of units x unit cost
= 5000 x R14,38461538
= R71 923
b)
Three reasons why management would prefer the use of direct costing system to an absorption costing are:
• Operating results can be presented in a readily understandable form
• Operating results calculated according to the direct costing method are of a particular importance to
management in terms of decision making.
• The direct costing method helps to overcome the problem of allocating fixed costs and eliminates the
dangers attached to the over or under allocation of fixed overheads to certain products.
c) MAANDA FOR YOU (PTY) LTD
Calculation of the budgeted breakeven point for the company for the year 2018 and 2019 financial years
respectively
Breakeven point (in rands) = Total fixed cost .
. Contribution margin
Budgeted Actual
2019 2 018
R R
Total fixed costs/Contribution margin R104 000 (1) R208 000 (2)
0,544444444 (3) 0,768888888 (3)
Breakeven point (in rands) R191 020,41 R270 520,23
WORKINGS:
(1)
Calculation of total fixed costs :
Manual Automated
2018 2 018
Total Fixed costs R R
Equipment fees paid 55 000 150 000
Mantainence contract 19 000 28 000
Rent paid for premises 30 000 30 000
Total fixed costs 104 000 208 000
(2) Calculation of contribution:
1(a)
PIZZA MARKET (pty) LTD
Budgeted Statement of comprehensive income for PIZZA MARKET (pty) LTD
for the year ending 31 September 2018 in accordance with direct costing principles
May
R
Sales 3 900 000
Less :Variable cost of sales 1 538 077
Opening inventory [R210 000 – (10 000 x R10)] 110 000
Manufacturing cost:
Direct materials (55 000 x R10) 550 000
Direct Labor (55 000 x R15 x 10/60) 137 500
Variable overheads (55 000 x R2,5) 137 500
Cost of goods available for sale 935 000
Less closing stock(5 000 units/65 000unitsx R935 000/1) 71 923
Variable Manufacturing cost of sales 863 077
Add :Variable selling cost (0,45 x R1 500 000) 675 000
Contribution 2 361 923
Less Fixed costs 1 425 000
Manufacturing overheads 600 000
Selling and administrative costs (0,55 x R1 500 000) 825 000
Net profit before tax 936 923
Closing stock units = Opening stock +Production units less Sales units
=10 000 + 55 000 -60 000 = 5 000 units
Based on Weighted average cost ,
Unit cost = Cost of goods available for sale / units available for sale
=R935 000/65 000 units =R14,38461538 per unit
, Closing stock value = Number of units x unit cost
= 5000 x R14,38461538
= R71 923
b)
Three reasons why management would prefer the use of direct costing system to an absorption costing are:
• Operating results can be presented in a readily understandable form
• Operating results calculated according to the direct costing method are of a particular importance to
management in terms of decision making.
• The direct costing method helps to overcome the problem of allocating fixed costs and eliminates the
dangers attached to the over or under allocation of fixed overheads to certain products.
c) MAANDA FOR YOU (PTY) LTD
Calculation of the budgeted breakeven point for the company for the year 2018 and 2019 financial years
respectively
Breakeven point (in rands) = Total fixed cost .
. Contribution margin
Budgeted Actual
2019 2 018
R R
Total fixed costs/Contribution margin R104 000 (1) R208 000 (2)
0,544444444 (3) 0,768888888 (3)
Breakeven point (in rands) R191 020,41 R270 520,23
WORKINGS:
(1)
Calculation of total fixed costs :
Manual Automated
2018 2 018
Total Fixed costs R R
Equipment fees paid 55 000 150 000
Mantainence contract 19 000 28 000
Rent paid for premises 30 000 30 000
Total fixed costs 104 000 208 000
(2) Calculation of contribution:
