Question 1
Required a
Prepare the actual statement of comprehensive income for the year ended 30 April 2025 for Scientific Calculator using absorption
costing principles.
R
Sales (760 x 3 800) 2 888 000
Cost of sales - 1 755 600
Direct material (200 x 4 500) 900 000
Indirect material (60 x 4 500) 270 000
Direct labour (150 x 4 500) 675 000
Other direct manufacturing costs (40 x 4 500/20) 9 000
FMO (500 000/10 000 x 4 500) 225 000
Total costs of production 2 079 000
Closing inventory (2 079 000/4 500 x 700) - 323 400
Over/(under) recovery (Calc 1) 17 500
Gross profit 1 149 900
Other costs
Commission on sales (5% x 2 888 000) - 144 400
Net income 1 005 500
Calculations
Over/under recovery
Actual FMO:
Indirect labour 180 000
Water and electricity 130 000
Factory rental plus depn and maintenance 105 000
415 000
Scientific calculator (415 000/2) 207 500
, Overheads absorbed 225 000
Over recovery 17 500
b) Calculate the value of the closing inventory of Scientific Calculator be on 30 April 2025 if direct costing was used in (a) above
R
Direct material (200 x 4 500) 900 000
Indirect material (60 x 4 500) 270 000
Direct labour (150 x 4 500) 675 000
Other direct manufacturing costs (40 x 4 500/20) 9 000
Total variable manufacturing costs 1 854 000
Closing inventory (1 854 000/4 500 x 700) 288 400
c) Briefly explain why the budgeted fixed manufacturing overhead allocation rate is used rather than the actual fixed manufacturing
overhead rate when product cost is determined under absorption costing.
Actual fixed manufacturing cost information will only be avaible at the end of the period, which will be too late to cost the inventory.
d) Calculate the over/under recovered overheads for Calculate-it (Pty) Ltd for the financial year and prepare a journal entry to show
how this over/under recovery would normally be dealt with
Dr Cr
Cost of goods sold 17 500
Overhead Over-Recovery 17 500
Recording of over-recovery
e) Name three (3) possible causes of over/under applied overheads.
Over estimation of OAR
Lower actual overhead costs
Higher production levels
f) Write a brief report to Calculate-it (Pty) Ltd’s management highlighting the impact on Scientific Calculator’s gross profit assuming that
Calculate-it (Pty) Ltd decreased its selling price by 5% and increased sold units by 10%.
Required a
Prepare the actual statement of comprehensive income for the year ended 30 April 2025 for Scientific Calculator using absorption
costing principles.
R
Sales (760 x 3 800) 2 888 000
Cost of sales - 1 755 600
Direct material (200 x 4 500) 900 000
Indirect material (60 x 4 500) 270 000
Direct labour (150 x 4 500) 675 000
Other direct manufacturing costs (40 x 4 500/20) 9 000
FMO (500 000/10 000 x 4 500) 225 000
Total costs of production 2 079 000
Closing inventory (2 079 000/4 500 x 700) - 323 400
Over/(under) recovery (Calc 1) 17 500
Gross profit 1 149 900
Other costs
Commission on sales (5% x 2 888 000) - 144 400
Net income 1 005 500
Calculations
Over/under recovery
Actual FMO:
Indirect labour 180 000
Water and electricity 130 000
Factory rental plus depn and maintenance 105 000
415 000
Scientific calculator (415 000/2) 207 500
, Overheads absorbed 225 000
Over recovery 17 500
b) Calculate the value of the closing inventory of Scientific Calculator be on 30 April 2025 if direct costing was used in (a) above
R
Direct material (200 x 4 500) 900 000
Indirect material (60 x 4 500) 270 000
Direct labour (150 x 4 500) 675 000
Other direct manufacturing costs (40 x 4 500/20) 9 000
Total variable manufacturing costs 1 854 000
Closing inventory (1 854 000/4 500 x 700) 288 400
c) Briefly explain why the budgeted fixed manufacturing overhead allocation rate is used rather than the actual fixed manufacturing
overhead rate when product cost is determined under absorption costing.
Actual fixed manufacturing cost information will only be avaible at the end of the period, which will be too late to cost the inventory.
d) Calculate the over/under recovered overheads for Calculate-it (Pty) Ltd for the financial year and prepare a journal entry to show
how this over/under recovery would normally be dealt with
Dr Cr
Cost of goods sold 17 500
Overhead Over-Recovery 17 500
Recording of over-recovery
e) Name three (3) possible causes of over/under applied overheads.
Over estimation of OAR
Lower actual overhead costs
Higher production levels
f) Write a brief report to Calculate-it (Pty) Ltd’s management highlighting the impact on Scientific Calculator’s gross profit assuming that
Calculate-it (Pty) Ltd decreased its selling price by 5% and increased sold units by 10%.
