Semester 1 - (2018)
BARBICAN ACCOUNTING SCHOOL
E:
Cell: 083 347 1518
MANAGEMENT ACCOUNTING (MANAC)
MAC3701 - 2018
STUDY NOTES + ASSIGNMENTS and EXAMS PACK
EXAM FOCUS NOTES
QUESTIONS AND SOLUTIONS
“Focus on what matters”
SINCE 1986
1| BARBICAN ACCOUNTING SCHOOL
E:
, Semester 1 - (2018)
Table of contents
Topic Learning Unit Pages
Economic Order Quanty (EOQ) 1 3- 7
Standard Costing and Variance Analysis 2 8 - 16
Multi- Volume Product Analysis 3 17 - 25
Transfer Pricing and Performance Measurement 4 26 - 31
Direct and Absorption Costing 5 31 - 36
Activity Based Costing (ABC) 6 37 - 46
Process Costing 7 47 - 50
Cost Estimation and Cost Behaviour 8 51 - 54
Typical Exam Questions and Solutions 55 - 93
2| BARBICAN ACCOUNTING SCHOOL
E:
, Semester 1 - (2018)
LEARNING UNIT 1
ECONOMIC ORDER QUANTITY (EOQ) FORMULA AND ITS COMPONENTS
Exam Focus areas;
1. Application of the EOQ to determine production run size,
2. Decision making with regard to quantity discounts and the EOQ,
3. Understanding key terms; Lead Time, Safety Stock and Re-order levels.
Examples addressing the Exam Focus Areas;
ECONOMIC ORDER QUANTINTY (EOQ) = 2x Dx O
² H + (P x i)
Where D= Annual Demand
O= Ordering Cost per order
H= Holding Cost per annum
P= Purchase Price
i= After tax cost of capital (required rate of return)
Learning Qn 1
Toyz (Pty) Ltd ts a distributor of battery operated toy cars for children under the age of five years. The cars are so popular that the company has at
times struggled to meet the demand. The average annual sales for these cars is 12 000 units and the sales are distributed evenly throughout the year
based on 345 operating days per annum.
The following additional information is available for these cars;
Safety Stock 250 cars
Lead time 5 days
Inventory holding cost R18 per car per annum
Purchase price R120 per car
Cost of capital (after tax) 10%
Ordering cost (irrespective of supplier) R200 per order
Assume that safety stock will be maintained throughout the period.
A supplier in the Middle East has offered Toyz (Pty) Ltd a price of R100 per car irrespective of the exchange rate provided it purchases 12 orders
of 1 000 cars per order (resulting in an order being placed each month). Management will no longer hold any safety stock if this offer is accepted.
Should the offer be accepted, inventory holding cost will increase from R13 500 per annum to R15 000 per annum. Import duties not refundable by
SARS will be R19 000 per order.
a) Calculate the economic order quantity of Toyz (Pty) Ltd Ignore the new offer [3]
b) Calculate the re-order point for the cars if the safety stock is maintained at 250 cars [2]
c) Advise the management of Toyz (Pty} Ltd whether they should accept the price offered by the Middle East supplier [6]
3| BARBICAN ACCOUNTING SCHOOL
E:
, Semester 1 - (2018)
Solution
a.) EOQ =
² 2xDxO Learning Points
H + (P x i) - This formula is not given in the exam so please
make sure you put it in your mind by doing this question
as many times as possiple.
= ² 2 x 12 000 x 200 - Please practise on how to solve this square-root with your calculator
18 + (120 x 10%)
= ² 4 800 000
30
- Inorder to minimise inventory cost, this is the the number of
= 400 units units to be ordered for every order placed.
- Always round up e.g 401.23units = 402 units, never round down
b.) Re- Order Level = Safety stock + consumption during lead time
Safety stock is given = 250 cars
- Let's calculate Consumption during lead time
Demand per day = Annual demand
Number of days
= 12 000
345
= 34.7826 cars Round to 4 decimal places to eliminate rounding
off differences
So, consumption during lead time
= 34.7826 x 5 days
= 173.9130 cars
= 174 cars Only round off the final answer as this;
then, Re-order level = Safety stock + consumption during lead time
= 250 + 174
= 424 cars
c. Analysis R
Savings in purhase price = ('R120 - R100) x 12 000 240 000
Ordering Cost : Current number of orders = ( 12 )
= 30 orders at a price of R200 per order, thus,
200 x 30 = 6 000
Proposed number of orders = (12 )
= 12 orders at a price of R200 per order, thus,
200 x 12 = 2 400
Therefore Savings on Ordering Costs = (R6 000 - R2 400) = 3 600
Inventory Holding Costs Increase in Holding Costs = (R15 000 - R13 500) = -1 500
Non- Refundable Import duties (R19 000 x 12) = (read question carefully) -228 000
Net Savings 14 100
4| BARBICAN ACCOUNTING SCHOOL
E:
BARBICAN ACCOUNTING SCHOOL
E:
Cell: 083 347 1518
MANAGEMENT ACCOUNTING (MANAC)
MAC3701 - 2018
STUDY NOTES + ASSIGNMENTS and EXAMS PACK
EXAM FOCUS NOTES
QUESTIONS AND SOLUTIONS
“Focus on what matters”
SINCE 1986
1| BARBICAN ACCOUNTING SCHOOL
E:
, Semester 1 - (2018)
Table of contents
Topic Learning Unit Pages
Economic Order Quanty (EOQ) 1 3- 7
Standard Costing and Variance Analysis 2 8 - 16
Multi- Volume Product Analysis 3 17 - 25
Transfer Pricing and Performance Measurement 4 26 - 31
Direct and Absorption Costing 5 31 - 36
Activity Based Costing (ABC) 6 37 - 46
Process Costing 7 47 - 50
Cost Estimation and Cost Behaviour 8 51 - 54
Typical Exam Questions and Solutions 55 - 93
2| BARBICAN ACCOUNTING SCHOOL
E:
, Semester 1 - (2018)
LEARNING UNIT 1
ECONOMIC ORDER QUANTITY (EOQ) FORMULA AND ITS COMPONENTS
Exam Focus areas;
1. Application of the EOQ to determine production run size,
2. Decision making with regard to quantity discounts and the EOQ,
3. Understanding key terms; Lead Time, Safety Stock and Re-order levels.
Examples addressing the Exam Focus Areas;
ECONOMIC ORDER QUANTINTY (EOQ) = 2x Dx O
² H + (P x i)
Where D= Annual Demand
O= Ordering Cost per order
H= Holding Cost per annum
P= Purchase Price
i= After tax cost of capital (required rate of return)
Learning Qn 1
Toyz (Pty) Ltd ts a distributor of battery operated toy cars for children under the age of five years. The cars are so popular that the company has at
times struggled to meet the demand. The average annual sales for these cars is 12 000 units and the sales are distributed evenly throughout the year
based on 345 operating days per annum.
The following additional information is available for these cars;
Safety Stock 250 cars
Lead time 5 days
Inventory holding cost R18 per car per annum
Purchase price R120 per car
Cost of capital (after tax) 10%
Ordering cost (irrespective of supplier) R200 per order
Assume that safety stock will be maintained throughout the period.
A supplier in the Middle East has offered Toyz (Pty) Ltd a price of R100 per car irrespective of the exchange rate provided it purchases 12 orders
of 1 000 cars per order (resulting in an order being placed each month). Management will no longer hold any safety stock if this offer is accepted.
Should the offer be accepted, inventory holding cost will increase from R13 500 per annum to R15 000 per annum. Import duties not refundable by
SARS will be R19 000 per order.
a) Calculate the economic order quantity of Toyz (Pty) Ltd Ignore the new offer [3]
b) Calculate the re-order point for the cars if the safety stock is maintained at 250 cars [2]
c) Advise the management of Toyz (Pty} Ltd whether they should accept the price offered by the Middle East supplier [6]
3| BARBICAN ACCOUNTING SCHOOL
E:
, Semester 1 - (2018)
Solution
a.) EOQ =
² 2xDxO Learning Points
H + (P x i) - This formula is not given in the exam so please
make sure you put it in your mind by doing this question
as many times as possiple.
= ² 2 x 12 000 x 200 - Please practise on how to solve this square-root with your calculator
18 + (120 x 10%)
= ² 4 800 000
30
- Inorder to minimise inventory cost, this is the the number of
= 400 units units to be ordered for every order placed.
- Always round up e.g 401.23units = 402 units, never round down
b.) Re- Order Level = Safety stock + consumption during lead time
Safety stock is given = 250 cars
- Let's calculate Consumption during lead time
Demand per day = Annual demand
Number of days
= 12 000
345
= 34.7826 cars Round to 4 decimal places to eliminate rounding
off differences
So, consumption during lead time
= 34.7826 x 5 days
= 173.9130 cars
= 174 cars Only round off the final answer as this;
then, Re-order level = Safety stock + consumption during lead time
= 250 + 174
= 424 cars
c. Analysis R
Savings in purhase price = ('R120 - R100) x 12 000 240 000
Ordering Cost : Current number of orders = ( 12 )
= 30 orders at a price of R200 per order, thus,
200 x 30 = 6 000
Proposed number of orders = (12 )
= 12 orders at a price of R200 per order, thus,
200 x 12 = 2 400
Therefore Savings on Ordering Costs = (R6 000 - R2 400) = 3 600
Inventory Holding Costs Increase in Holding Costs = (R15 000 - R13 500) = -1 500
Non- Refundable Import duties (R19 000 x 12) = (read question carefully) -228 000
Net Savings 14 100
4| BARBICAN ACCOUNTING SCHOOL
E:
