MAC3701 Assignment 2 (QUALITY ANSWERS) Semester 1 2025

This document contains workings, explanations and solutions to the MAC3701 Assignment 2 (QUALITY ANSWERS) Semester 1 2025. For assistance whats-app us on 0.6.8..8.1.2..0.9.3.4... QUESTION 1 (100 Marks; 180 Minutes) The Company information below applies to Parts A, B, C, D, and E of assessment 02. The additional information provided in each Part only applies to that part of assessment 02. For each Part below, you must: • Clearly show all your calculations in detail (marks are awarded for calculations); • Where necessary, indicate irrelevant amounts/adjustments with an R0 (nil-value); • Round all your workings to two decimals, except where otherwise stated, and • Ignore the time value of money and all taxation implications. Company information Pedal Pump (Pty) Ltd (PP) is a South African company that manufactures and sells both Standard (SPump) and Booster (BPump) bike floor pumps. The company prides itself on producing high-quality, durable products catering to urban and professional cyclists. The company's manufacturing plant is based in Benoni; they sell locally and export their products to various African and European markets. The BPump has an added high-pressure aluminium air chamber that quickly releases air to seat tubeless tyres on the tyre rim. The manufacturing process primarily involves the melting and extrusion of aluminium into the pump body and valve head tubing, while reinforced rubber and rubberised composite are heated and injected into moulds to create durable handles, hoses, and base plates. PP purchases other minor components separately and adds them to the manufacturing process. The company relies on dollar-denominated imports of high-quality aluminium and rubber, which also have a high carbon footprint. The industry has low barriers to entry, with stiff competition putting pressure on profit margins. New South African manufacturing regulations require stricter quality control and product safety testing, likely increasing operational costs. PP’s management is considering using cheaper materials to reduce costs and dependence on imported materials. After paying a generous facilitation fee, the company obtained a "compliant" compliance rating for a recent compliance inspection. The company uses an absorption costing system, values all its inventory items using the first-in-first-out (FIFO) method and has a 31 December financial year-end. Page 3 of 8 MAC3701 Assessment 02/S/2025 [TURN OVER] PART A (20 Marks; 36 Minutes) PP is finalising budgets for the 2025 financial year and budgeted to achieve a profit of R28,5 million for the 2025 financial year. The cost accountant presented the following calculation for the budgeted amount of units to achieve the target profit for the 2025 financial year: Details per unit SPUMP R BPUMP R Note Selling price 2 500 4 500 1.2 Less: Total Prime costs 1 500 2 700 1.3 Less: Manufacturing overheads 230 230 1.4 Less: Selling and distribution costs 35 35 1.5 Contribution per unit R735 R1 535 1.1 The budgeted production was 60 000 units of SPump and 40 000 units of BPump. There is no budgeted opening and closing inventory of any type. 1.2 Budgeted sales volumes will equal the budgeted production, for SPump and BPump. Each product will be sold for R 2 500 for SPump and R 4 500 for BPump. 1.3 Prime costs consist of direct labour and materials and are budgeted at 70% of the sale price. 1.4 For both products, manufacturing overheads consist of fixed and variable manufacturing overheads absorbed at R150 and R80 per unit, respectively. 1.5 Selling and distribution costs are budgeted at a total of R10 million for the financial year, with variable selling and distribution costs of R35 per unit. 1.6 Budgeted fixed administrative costs were R12,5 million for the financial year. REQUIRED: PART A (A - a) Critically evaluate the cost accountant’s calculation of units required to achieve the target profit for the year-end ended 31 December 2025. In your critical evaluation, you must: • Indicate whether and provide a reason why you agree/disagree with each amount; • Review all the information/workings for errors and/ or omissions, and where applicable, provide correct workings; (20) Total Part A 20 Details – units Workings Target profit in units = R + R (R735 + R1 535) Target profit units = 9 911, 89 ≈ 9 911 Target profit point units (SPump) = 9 911 x 64% = 6 343 units Target profit point units (BPump) = 9 911 x 36% = 3 568 units Page 4 of 8 MAC3701 Assessment 02/S/2025 [TURN OVER] PART B (20 Marks; 36 Minutes) During the PP’s planning session for May 2025, the management team presented the following: Details SPump R per unit BPump R per unit Sales price 2 650 4 650 Total variable manufacturing cost 1 850 3 250 FMO 150 150 Variable selling and distribution cost 35 35 1.1. PP expects to manufacture and sell 5 400 units of SPump and 3 750 units of BPump. 1.2. PP has made a 10% allowance for idle time and is expecting a total of 11 250 work hours. It should take 72 clock minutes to manufacture each unit of SPump and 90 minutes clock minutes for BPump. 1.3. PP will only be able to import 14 tonnes of Aluminium due to supply chain challenges. The Aluminium required per unit is 1,25 kg for SPump and 1,75 kg for BPump. There is also a 95% probability that 10% of the necessary aluminium could be damaged on arrival. REQUIRED: PART B (B - a) Calculate the budgeted optimum production mix in units to be manufactured for May 2025. (12) (B- b) From the company information only, identify and briefly discuss any four ethical, environmental, and business-related risks that PP may be exposed to during the 2025 financial year. (8) Total Part B 20 Page 5 of 8 MAC3701 Assessment 02/S/2025 [TURN OVER] PART C (20 Marks; 36 Minutes) In March 2025, PP had a standard costing system in place. There was no budgeted opening and closing inventory of any type. The following information was extracted from the March 2025 actual and budgeted information: 1.1. Sales PP budgeted to sell 5 500 units of SPump at R2 520 per unit and 3 500 units of BPump at R4 680 per unit. A marketing campaign positioning PP as a premium brand resulted in the budgeted price being 10% less than the actual sales price for both products. PP reached 90% of the budgeted sales volume due to the higher prices for both products. 1.2. Production schedule The budgeted production was equal to the budgeted sales demand for both products. However, the actual production was units for 6 050 SPump and 3 850 units for BPump. 1.3. Human resources • The standard labour time required for one unit is: • The standard clock hour rate is R288 per clock hour with a standard idle time allowance of 10% for direct labour. The wage records for June indicate a wage rate of R300 per clock hour for both products. 1.4. Production requirements for raw materials • The standard cost requirements for one SPump and one BPump unit are: Details Budgeted price Standard per unit SPump BPump Aluminium R48 500 per tonne 1,2 kg 1,8 kg Rubber R40 per kg 0,5 kg 0,75 kg Actual purchases and issues Aluminium 10 tonnes for R495 000 Rubber 5 tonnes for R200 000 1.5. Fixed manufacturing overheads (FMO) PP’s fixed manufacturing overheads (FMO) are allocated based on the budgeted direct labour clock hours. The budgeted FMO allocation rate is R120 per direct labour clock hour. Details SPump BPump Standard labour clock minutes per unit 75 90 Actual labour clock minutes per unit 70 81 Actual labour work minutes per unit 63 75 Page 6 of 8 MAC3701 Assessment 02/S/2025 [TURN OVER] PART C (continued) REQUIRED: PART C For answering Part C only, assume the following: • A standard costing system is in place. • The implications, if any, of opening and closing inventory should be ignored. (C - a) Calculate sales price variance for June 2025 per product type and in total. (4) (C - b) Calculate the labour efficiency variance at a work hour level for June 2025 per product type. (6) (C - c) Calculate BPump 's direct material usage variance for June 2025 (per material type and in total). (5) (C - d) Calculate SPump’s total fixed manufacturing volume variance for June 2025. (3) (C - e) Based on your calculations in C-d, briefly discuss one reason for the variance. (2) Total Part C 20 Page 7 of 8 MAC3701 Assessment 02/S/2025 [TURN OVER] PART D (30 Marks; 54 Minutes) Speed Rides (Pty) Ltd, a bicycle rental company in Lesotho, recently approached PP with a special order for 5 000 custom BPumps. These pumps require minor design modifications, including a longer hose and a custom logo. These custom BPumps can only be manufactured using the BPump production capacity. Speed Rides has offered to pay R4 500 per pump, which is lower than the regular selling price of R4 700. You have gathered the following information: 1.1. PP has a maximum production capacity of 59 000 units for BPump. The company must also keep 10% of demand production requirements as safety stock. Demand for the period under consideration is expected to be 50 000 units for BPump. The anticipated contribution for standard BPump units is R1 650 per unit. 1.2. The variable manufacturing costs for the custom BPump are expected to be R2 580 per unit, excluding the extended hose and custom logo. 1.3. Fixed manufacturing overhead costs are budgeted at R150 per unit. 1.4. Variable selling and distribution costs will be R35 per unit. PP will purchase a new delivery truck for R2 million to replace an old truck in its fleet. 1.5. Minor design modifications will require the purchase of new imported moulds for $12 000 ($1:R19). The moulds are depreciated on a straight-line basis over a useful life of 4 years. PP will be able to sell the moulds at 40% of their original value at the end of the special order. 1.6. Training to use the new moulds will cost R25 000, which the supplier will cover. 1.7. The extended hoses will require 0,8 kg of rubber for every unit produced at R40 000 per tonne of rubber. PP currently have 4 tonnes of rubber in stock at R39 500 per tonne. 1.8. The custom logo will cost PP R10,50 per booster pump. 1.9. PP has a policy to achieve a standard relevant profit of 30% on all special orders. 1.10. Speed Rides is requesting above-norm credit terms of 60 days; the company has also been linked to allegations of underpaying workers and poor working conditions in its Lesotho operation. REQUIRED: PART D (D - a) From a quantitative perspective only, advise if PP has sufficient capacity for the special order. • Motivate your advice with relevant and necessary calculations (5) (D - b) From a quantitative perspective only, advise if PP Should accept the special order. In your assessment, you must: • Indicate whether and provide a reason why you include/exclude each amount; • Focus on the application of the relevant costing principles (15) (D - c) Briefly discuss five qualitative factors PP should consider before accepting the special order from Speed Rides. (10) Total Part D 30 Page 8 of 8 MAC3701 Assessment 02/S/2025 [TURN OVER] PART E (10 Marks; 18 Minutes) The following information was extracted from the 2025 financial year budget: 1.1. The company is preparing its cash budget for the next quarter (July – September 2025), considering seasonal demand and uncertain market conditions. The sales department has provided the following estimates: 1.2. Product Expected monthly sales volume (Units) Price per unit R SPump 8 000 4 650 BPump 5 000 2 750 • The company expects a 10% increase in sales volume for both products in September only due to the spring cycling season. Due to market competition, the company only offers a 5% discount on the August sales price. • 20% of sales are on credit, with the remaining 80% being cash sales. Credit sales are collected over a two-month period, of which 75% are collected in the month following the sale, 23% are collected in the second month following the sale, and 2% are written off as bad debt. The following risks were added to the PP’s risk register: # Risks KPI 1 Factory machines may break down due to wear and tear due to lack of preventative maintenance, leading to delays in production. ? 2 Workers operating machines, cutting tools, and welding equipment may suffer from cuts, burns, or crush injuries. ? 3 If faulty components (e.g., defective pressure gauges or weak pump bases) are not detected early, defective pumps may be produced. ? Required PART E (E - a) Prepare the July, August and September 2025 cash budget relating to the sales. (7) (E - b) For only the risks added to the risk register, briefly describe three key performance indicators (KPIs) that can measure PP’s production efficiency, product quality, and operational health and safety. (3) Total Part E