October/November 2017
Question one
Pheladi (Pty) Ltd
1(a)
Actual statement of comprehensive in ended 30 April 2017 for product Moloto using absorption
costing principles
R
Sales ( 17 000 x R180) 3 060 000
Manufacturing cost of sales (2 116 500)
Opening inventory -
Production :Direct material (50 x 18 500) 925 000
Indirect material (R12 x 18 500) 222 000
Direct Labour (R40 x 18 500) 740 000
Packaging ( R50/20 x 18 500) 46 250
Applied fixed manufacturing division (R18 500 XR500 000/25 000) 370 000
Cost of goods available for sale 2 303 250
Less closing inventory [1 500 x (R50+R12+R40+R50/20+R400 000/20 000)] 186 750
Unadjusted gross profit 943 500
Less under –recovery [(R475 000 –(4 900 x R20)-R370 000] 7 000
Adjusted gross profit 936 500
Non-manufacturing costs/expenses (122 400)
Commission on sales (4% x R3 060 000) R122 400
Profit before tax R814 100
1(b)
Calculation of closing stock value based on direct costing
Direct materials (R50 X 1500) R75 000
Indirect material variable (R12 x 1500) R18 000
Direct labor (R40 x 1 500) R60 000
Packaging ( R50/20 x 1 500) R3 750
Total value R156 750
, 1 (c )
Actual fixed overheads can be only determined at the end of the period. It will be too late to wait for the
year end in order to determine fixed manufacturing costs for the product for costing purposes since
product costs are required for pricing decisions once products are finished.
1(d)
Over/under recovered overheads
Actual fixed manufacturing overheads (R265 000+R80 000 +R130 000) R475 000
Applied fixed manufacturing overheads [ (18 500 + 4 900) x R20] (R468 000)
Under –recovery R7 000
Actual costs are more than applied and this means there was under-recovery of fixed manufacturing
overheads.
1 (e)
• The budgeted overhead allocation rate was incorrectly pre-determined
• Actual overheads are more or less than budgeted overheads
• The number of units produced is more or less than normal production capacity
1(f)
To: Management
From: The Management Accountant
Title: Impact on gross profit assuming a decrease in the selling price by % at the beginning of the 2017
financial year.
If selling price decreases by 5 % , contribution per unit will decrease by ( 0 0.5 x R180) R9 and the ne
contribution will be R66,50 (75,50 –R9).
However the increase in sales units by 10% will increase contribution by R113 050(R66,50 x 1700).
Therefore, the overall effect will be a decrease in gross profit by (R9 x 17 000) R153 000 due to a
decrease in selling price plus an increase in gross profit by ( R113 050) due to an increase in sales units .
Question one
Pheladi (Pty) Ltd
1(a)
Actual statement of comprehensive in ended 30 April 2017 for product Moloto using absorption
costing principles
R
Sales ( 17 000 x R180) 3 060 000
Manufacturing cost of sales (2 116 500)
Opening inventory -
Production :Direct material (50 x 18 500) 925 000
Indirect material (R12 x 18 500) 222 000
Direct Labour (R40 x 18 500) 740 000
Packaging ( R50/20 x 18 500) 46 250
Applied fixed manufacturing division (R18 500 XR500 000/25 000) 370 000
Cost of goods available for sale 2 303 250
Less closing inventory [1 500 x (R50+R12+R40+R50/20+R400 000/20 000)] 186 750
Unadjusted gross profit 943 500
Less under –recovery [(R475 000 –(4 900 x R20)-R370 000] 7 000
Adjusted gross profit 936 500
Non-manufacturing costs/expenses (122 400)
Commission on sales (4% x R3 060 000) R122 400
Profit before tax R814 100
1(b)
Calculation of closing stock value based on direct costing
Direct materials (R50 X 1500) R75 000
Indirect material variable (R12 x 1500) R18 000
Direct labor (R40 x 1 500) R60 000
Packaging ( R50/20 x 1 500) R3 750
Total value R156 750
, 1 (c )
Actual fixed overheads can be only determined at the end of the period. It will be too late to wait for the
year end in order to determine fixed manufacturing costs for the product for costing purposes since
product costs are required for pricing decisions once products are finished.
1(d)
Over/under recovered overheads
Actual fixed manufacturing overheads (R265 000+R80 000 +R130 000) R475 000
Applied fixed manufacturing overheads [ (18 500 + 4 900) x R20] (R468 000)
Under –recovery R7 000
Actual costs are more than applied and this means there was under-recovery of fixed manufacturing
overheads.
1 (e)
• The budgeted overhead allocation rate was incorrectly pre-determined
• Actual overheads are more or less than budgeted overheads
• The number of units produced is more or less than normal production capacity
1(f)
To: Management
From: The Management Accountant
Title: Impact on gross profit assuming a decrease in the selling price by % at the beginning of the 2017
financial year.
If selling price decreases by 5 % , contribution per unit will decrease by ( 0 0.5 x R180) R9 and the ne
contribution will be R66,50 (75,50 –R9).
However the increase in sales units by 10% will increase contribution by R113 050(R66,50 x 1700).
Therefore, the overall effect will be a decrease in gross profit by (R9 x 17 000) R153 000 due to a
decrease in selling price plus an increase in gross profit by ( R113 050) due to an increase in sales units .
