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2019 FBS 200 EXAM: Multiple Choice Questions MARKS 14
Questions Answers Marks
1 C 2
2 A 3
3 C 2
4 C 2
5 B 3
6 B 2
Question 1 C
Cash flow 0: -R30 000
Cash flow 1: -R11 760
Cash flow 2: -R13 020
Cash flow 3: -R16 310
I/YR 15%
NPV -R60 795.17
PV: -R60 795.17
N: 3
I/YR: 15%
PMT: R26 626.88
Question 2 A
Total sales revenue Less further processing cost NRV
Milk R 21 510 R 2 575 R 18 935
Cheese R 99 684 R 12 590 R 87 094
Cream R 89 820 R 8 800 R 81 020
Butter R 65 284 R 9 350 R 55 934
Whey R 8 910 R0 R 8 910
R 251 893
Less: Whey -R8 910.00
R 242 983
Joint cost R 106 090
Costs from joint process R 115 000
Less:NRV of whey -R8 910.00
Allocated to butter: R106 690 x (R55 934 / R242 983) R24 421.62
Question 3 C
Y25 = aXb 212.87
a 600
X 25
b log 0.8 / log 2 = 0.3219
Question 4 C
b
Y25 = aX 367.84 x 25 9 196.00
b
Y24 = aX 370.13 x 24 8 883.13
a 600
X 24
b log 0.9 / log 2 = 0.1520
Time taken for 25th batch (difference) 312.87
Question 5 B
Actual quantity (hours) 50 000
Standard quantity (hours) 2 hours x 26 000 units 52 000
Standard price (rate per hour) R48
Labour efficiency variance (AQ - SQ) x SP (50 000 - 52 000) x R48
Question 6 B
Actual price (rate per hour) R2 442 000 ÷ 50 000 48.84
Standard price (rate per hours) Given 48
Actual > Standard Adverse
2019 FBS 200 EXAM PART A MARKS 37.0
a) Calculate the normal loss percentage of the input quantity of yarn used during the weaving process. MARKS 2
Scarves Blankets
Total weight of budgeted yarn to be produced (given) (751 275) 231 525 519 750 ^ 0.5 M
less: Total weight of completed production (kilograms) (728 736.75) 224 579.25 504 157.50
Budgeted production (units) after quality inspection 735 000 550 000
^ 0.5 R/W
x Weight per completed unit (gram) 305.55 916.65
(22538.25) 6 945.75 15 592.50 ^ 0.5
÷ Total weight of budgeted yarn to be produced (given) (751 275) 231 525 519 750 ^ 0.5 R/W
Normal loss % 3% 3%
Note: Since the loss % is the same for scarves and blankets, the calculation does not need to be done for both. See in brackets.
Alternative: (if calculation is done on a total basis)
(735 000 x 305.55g) + (550 000 x 916.65g) = 728 736.75g 1 R/W
 (231 525 + 519 750 - 728 736.75) ÷ (231 525 + 519 750) = 3% loss 1 R/W
b) Calculate the budgeted weaving machine time (in minutes) needed per blanket. MARKS 2.5
Blankets
Total kilograms to weave (given) 519 750 ^ 0.5 R/W
÷ Kilograms per batch 189 ^ 0.5 R/W
Batches to weave 2 750
x Time to weave each batch of 189kg (hours) 9 ^ 0.5 R/W
Total time to weave the batches (hours) 24 750
÷ Budgeted production (given) 550 000 ^ 0.5 R/W
Total machine time per blanket (hours) 0.05
x Minutes per hour 60.00 ^ 0.5 R/W
Total machine time per blanket (minutes) 2.7
Alternative:
(189 x 0.97)^ = 183.33 0.5 R/W
 183.33 ÷ 0.91665^ = 200 blankets per batch 0.5 R/W
 9^ x 60^ = 540 ÷ 200^ = 2.7 minutes 1.5 R/W
c) Calculate the amount that each semi-skilled and highly skilled employee is paid per annum, respectively. MARKS 3
The weaving division total salaries and wages can not be used as it includes the supervisor salary.
Let Y = salary of semi-skilled production employee
Thus: 9Y^ + (3^ x 1.4Y^) = R3 960 000^ 2 R/W
13.2 Y = R3 960 000
Therefore, Y (semi-skilled employee salary) = R300 000 ^ 0.5 M
Highly skilled = R300 000 x 1.4 R420 000 ^ 0.5 M
d) Calculate the budgeted fixed production overhead cost per blanket and scarf respectively for the 2020 financial year using the traditional
MARKS 19.0
(departmental) approach.
Washing, spinning and dyeing division Weaving division
Total indirect production division's cost R8 540 000 R5 060 000
Soap ^ R300 000 - 0.5
Dye ^ R800 000 - 0.5
Indirect labour - supervisor's salary (calculation 1) - R500 000
Water ^ R1 200 000 - 0.5 R/W
Water disposal costs ^ R1 800 000 - 0.5
Depreciation - R1 600 000 ^ 0.5
Other indirect costs ^ R4 440 000 R2 960 000 ^ 1
Maintenance costs (calculation 2) R900 000 R300 000
Administrative expenses (-^ if included) - -
Quality control (100% to weaving division) R1 500 000 ^ 0.5 R/W
Total R9 440 000 R6 860 000
Machine hours (or 2 542 050 minutes) 42 367.50 35 775
Cashmere yarn (2 / 60^ x 231 525^) or 463 050 minutes 7 717.50 1 R/W
Mohair yarn (4 / 60^ x 519 750^) or 2 079 000 minutes 34 650 1
Scarves (231 525kg ÷ 189kg^ x 9hrs^) 11 025 1 R/W
Blankets (35 775hrs-11 025hrs or 519 750kg ÷ 189kg x 9hrs)^ 24 750 0.5 M
Machine hour allocation %
Cashmere yarn (7 717.5hrs / 42 367.5hrs) (or 2 542 050mins) 18.22%
^ 0.5 M
Mohair yarn (34 650hrs / 42 367.5hrs) (or 2 542 050 mins) 81.78%
Scarves (11 025hrs / 35 775hrs) 30.82%
^ 0.5 M
Blankets (24 750hrs / 35 775hrs) 69.18%
x Total indirect production division cost
R1 719 553.90
x R9 440 000 ^ 0.5 M
R7 720 446.10
R2 114 088.05
x R6 860 000 ^ 0.5 M
R4 745 911.95
Budgeted indirect cost per unit
Scarf (Washing o/h's + weaving o/h's)^ ÷ 735 000 units^) R5.22 1 M
Blanket (Washing o/h's + weaving o/h's)^ ÷ 550 000 units^) R22.67 1 M
Calculation 1
Salary expense of Weaving division (given) R8 780 000 0.5 R/W
less: Direct labour cost (seamstresses - scarves) (R4^ x 735 000^) R2 940 000 1 R/W
less: Direct labour cost (seamstresses - blankets) (R6^ x 550 000^) R3 300 000 1 R/W
less: Highly skilled employees (2^ x R420 000^) R840 000 1 M
less: Semi-skilled employees (4^ x R300 000^) R1 200 000 1 R/W
Supervisor's salary (Indirect labour) R500 000
Calculation 2
Maintenance costs Washing, spinning and dyeing division Weaving division
Budgeted maintenance time per machine (days) ^ 9 2 ^ 1 R/W
x Number of machines ^ 12 18 ^ 1 R/W
Budgeted total maintenance time (days) 108 36
% 108/(108+36 = 144) and 36/(108+36 = 144) 75% 25% 0.5 M
Allocation (x R1 200 000) R900 000 R300 000 0.5 R/W
e) Complete the Activity Schedule by calculating the missing values (A to C). Clearly show all calculations. MARKS 4.5
A - Washing of Mohair R4 780 000
Soap R300 000 ^ 0.5 R/W
Water R1 200 000 ^ 0.5 R/W
Water disposal R1 800 000 ^ 0.5 R/W
Indirect production costs (R7 400 000^ x 20%^) R1 480 000 1 R/W
B - Set-up of weaving looms R1 240 000
Supervisor's salary R500 000 ^ 0.5 M
Indirect production costs (R7 400 000 x 10%^) R740 000 0.5 R/W
C - Kilograms of mohair that are washed
Purchased raw unprocessed kilograms of mohair (519 750kg^ ÷ 0.75^) 693 000 kg 1 R/W

f) Discuss whether it would be appropriate to implement an activity based costing (ABC) approach for Natural Weavers.(Pty) Ltd. Your discussion
MARKS 6
should include any factors that should be taken into consideration.

Communication Skills: For logically linking the theory to the facts in the scenario. 1
ABC is appropriate when: For Natural Weavers:
Overheads are material and not significantly driven by production volumes. Overheads are currently calculated as if they are driven by machine hours
1 R/W
(They are driven by activities) (traditional)
Blankets (large) and scarves (small) differ in size and use the company's
1 R/W
resources in different proportions
There is product diversity (various overhead activities and varying proportions in
which products use the company's resources)
The scarves have a more elaborate design than the blankets, which results
1 R/W
in set-up times differing
Intensive competition in the market in which the products are sold (Therefore,
Operates in a highly competitive market 1 R/W
more accuarte cost required)
Conclusion: The ABC method of indirect cost allocation would be appropriate. 1 R/W
2019 FBS 200 EXAM PART B MARKS 10.0
a) Discuss how the revenue from the sale of the pillow stuffing (fibres) should be
MARKS 2
treated for financial accounting purposes.
The stuffing product is incidental but expected^ and therefore regarded as a normal loss^. 1 R/W
Therefore, the proceeds from the stuffing should reduce ^ the cost of the normal loss which will
1 R/W
decrease cost of sales/finished goods ^.
b) Calculate the cost of the output transferred from the washing process to the
MARKS 8
spinning process in the washing, spinning and dyeing division of Natural Weavers for
Total cost R6 440 000
Opening WIP (R220^ x 8 000kg^) R1 760 000 1 R/W
Current period cost (R234^ x 20 000kg^) R4 680 000 1 R/W
Total equivalent units 28 000
Completed units (8 000^ + 20 000^ - 6 000 - 4 000) 18 000 1 R/W
Closing WIP ^ 4 000 0.5 R/W
Normal loss ^ 6 000 0.5 R/W
Cost per equivalent unit (CPU) (R6 440 000 / 28 000)^ R230.00 0.5 R/W
Raw material - mohair wool (18 000 completed units x R230 CPU)^ R4 140 000 0.5 M
Full normal loss (6 000kg^ normal loss x R230 CPU^) R1 380 000 1 M
Less ^ : Normal loss proceeds (6 000kg x R10 per kg^) -R60 000 1 R/W
Electricity R22 000 0.5 R/W
Cost of the output transferred from the washing process R5 482 000 0.5 M
2019 FBS 200: EXAM PART C MARKS 16.0
a) Calculate the total expected sales demand in units for scarves and blankets,
MARKS 5.0
respectively, for the 2020 financial year if the advertising campaign is adopted.
Probability: sales from advertising Units
10% x 80% x 0 units -
90% x 80%^ x 70 000 units^ 50 400 1.0 R/W
90% x 20%^ x 35 000 units^ 6 300 1.0 R/W
56 700 units

Scarves Blankets
Budgeted sales demand 735 000 550 000 0.5 R/W
Once-off sales contract - 35 000 - 50 000 0.5 R/W
Normal sales 700 000 500 000

Sales mix ratio 7 5

Sales from advertising:

56 700 x 7/12^ 33 075 0.5 M
56 700 x 5/12^ 23 625 0.5 M
Plus: Other budgeted sales demand  735 000 550 000 1.0 R/W
Total expected sales demand 768 075 573 625
b) Calculate the minimum number of units of scarves and blankets, respectively, to
MARKS 6.0
reach the target profit required by the directors. (excl advertising campaign)

Allocated fixed costs (R6 860' + R9 440') R16 300 000 0.5 R/W
Fixed costs of once off contract -R1 000 000 0.5 M
Target profit (all sales) R300 000 000 0.5 R/W
R315 300 000
Once-off sales contract
Contribution -R25 325 000
35 000 x R75^ R2 625 000 0.5 R/W
50 000 x R454^ R22 700 000 0.5 R/W
Target from normal sales R289 975 000
Scarves Blankets
Contribution per unit (given) R75 R454 0.5 R/W
Sales mix 7 5 0.5 M
R525 R2 270
Contribution per bundle R2 795 0.5 M
Bundles to sell
103 747.76 0.5 M
(target profit from normal sales ÷ contribution per bundle)
Scarves Blankets
Bundles to sell x sales mix ( x7^ and x5^) 726 234.35 518 738.82 1.0 M
Units rounded up ^ 726 235 518 739 0.5 M
Plus: Once off contract sales ^ 35 000 50 000 0.5 R/W
Minimum number of units to sell to reach target profit 761 235 568 739
c) Discuss, with supporting calculations, whether the advertising campaign should
be accepted by the directors. The advertising campaign will only be accepted if the MARKS 5.0
required target profit is achieved.

Communication skills – Logical argument

1.0 R/W
(Award if a comparison of before and after advertising is made)

Alternative 1 Scarves Blankets 2.0

Expected sales demand (excluding advertising - given) 735 000 550 000 0.5 R/W
Minimum sales demand / Breakeven without advertising 761 235 568 739 0.5 M
Shortfall in demand - 26 235 - 18 739
Expected sales demand (including advertising - from a) 768 075 573 625 0.5 M
Minimum sales demand / Breakeven without advertising 761 235 568 739 0.5 M
Excess in demand 6 840 4 886

Alternative 2 Scarves Blankets 2.0

Additional contribution
(R75 x 33 075 scarves) R2 480 625 R10 725 750 0.5 M
(R454 x 23 625 blankets)
Less: Additional fixed costs -R500 000 0.5 R/W
Additional net profit from advertising R12 706 375
Contribution from expected sales
(R75 x 735 000 scarves) R55 125 000
0.5 R/W
(R454 x 550 000 blankets) R249 700 000
Fixed costs -R16 300 000
Profit from normal expected sales units R288 525 000
Target profit R300 000 000 0.5 R/W
Shortfall in profit before advertising R11 475 000

Alternative 3 2.0
Incremental breakeven from additional advertising fixed cost
Advertising cost ÷ contribution/batch (R500 000 ÷ R2795)^ = 178.89 0.5 M
Scarves Blankets
 Bundles to sell (178.89) x sales mix ( x7 and x5) 1252.236136 894.4543828
Units rounded up -1253 -895
Additional sales units from advertising 33 075 23 625
Excess sales demand 31 822 22 730 0.5 M
Expected sales demand (excluding advertising - given) 735 000 550 000
Minimum sales demand / Breakeven without advertising 761 235 568 739 0.5 M
Shortfall in demand - 26 235 - 18 739
Total excess in sales demand from advertising 5 587 3 991 0.5 M

Alternative 1: Expected sales demand excluding advertising is not enough to cover fixed
costs and make the required profit target (shortfall in units) however expected sales
demand including advertising is enough to cover fixed costs and make the required target
profit (excess in units)
Alternative 2: If the advertising campaign is adopted, the additional profit from the
2.0 M
advertising campaign will exceed the shortfall in profit without the advertising campaign.
Alternative 3: If the advertising campaign is adopted, an excess in sales demand will be
achieved.
Decision: The advertising campaign should therefore be accepted if the directors want to
reach their target profit. 
2019 FBS 200: EXAM PART D MARKS 12.0
a) Calculate the relevant cash flows related to the labour costs of the special request from Woollies (Pty) Ltd. Provide reasons
MARKS 8.0
for any amounts you may deem as irrelevant.

Seamstresses
Wage earners working at full capacity. No hours lost from normal production. RC = overtime worked R1 200 2.5 M
R28 per clock hour^ x (8 hrs clocked ÷ 7 hrs worked)^ = R32 per work hour x 15 work hours^ x 1.25^ x 2^

Semi-skilled employees
Salary earners working at full capacity. No overtime. Salary = irrelevant, RC = extra wage labour cost
• Salary of semi-skilled employees: irrelevant as cost does not change between alternatives^ R0 0.5 R/W
• Additional wage workers: R36 per hour^ x 55 hours^ x 4 employees^ R7 920 1.5 M

Highly-skilled employees
Salary earners working at full capacity. Salary = irrelevant . Need to work at other area: RC = lost contribution.
• Salary of highly skilled employees: irrelevant as cost does not change between alternatives^ R0 0.5 R/W
• Lost contr: R75 profit^ + R8^ = R83 contr lost x 5 000 scarves^ R415 000 1.5 M

Supervisor
Salary earner, spare capacity thus salary = irrelevant. Opportunity cost to hire out the supervisor.
• Opportunity: R500^ x 4 hours^ R2 000 1 R/W
• Salary of supervisor: irrelevant as does not change between alternatives R0 0.5 R/W
Total relevant labour cost related to special request to produce 50 cashmere jerseys R426 120
b) Discuss the qualitative factors, specific to the scenario, that the directors of Natural Weavers should consider before they
MARKS 4.0
accept the special request from Woollies (Pty) Ltd.
• Seamstress: Overtime premium is normally time and a half. The employees may be unhappy if they are only paid at a premium of
1 R/W
time and a quarter for the special request.
• Semi-skilled workers: The additional wage workers to be hired to produce the cashmere jerseys are the friends of one of the
1 R/W
directors wives'. These wage workers may not be sufficiently skilled to complete the special request.
• Highly skilled workers: 5 000 cashmere scarves will no longer be produced as one of the highly skilled employees is outsourced to
the production of the cashmere jerseys. As a result, there may not be sufficient production to fulfil existing sales demand which may lead 1 R/W
to unhappy customers that have been loyal to Natural Weavers.
• Supervisor: By not accepting the competitor's offer, future opportunities to outsource the supervisor during idle time may be
1 R/W
foregone.
• Experience of Natural Weavers: Natural Weavers may not have the skill and experience required to produce cashmere jerseys as
1 R/W
this is not part of their current operations. Woollies may not be satisfied with the quality of the jerseys delivered.
Natural Weavers may possibly gain future business from Woollies for cashmere jerseys and this will allow Natural Weavers to
1 R/W
diversify their product range and extend/ grow their business.
Any additional point, specific to the scenario (max 1 mark) R/W
2019 FBS 200: EXAM PART E MARKS 31.0
a) List four sources of finance, other than the 3 year short term loan used to finance the new machine, that would most likely
MARKS 2.0
be taken into account by Natural Weavers to calculate the weighted average cost of capital of 14%.
Equity (Max 1 mark, 0.5 marks per component)
Ordinary share capital 0.5 R/W
Preference shares (hybrid) 0.5 R/W
Retained earnings 0.5 R/W
Debt (Max 1 mark, 0.5 marks per component)
Debentures 0.5 R/W
Mortgage bonds 0.5 R/W
Leases / Installment sales agreement 0.5 R/W
Creditors 0.5 R/W
Bank overdraft 0.5 R/W
Factoring of debtors 0.5 R/W
b) Calculate the monthly repayments that will be made to City Bank as a result of the financing of the new machine. MARKS 3.0
Financing of machine
PV (cost price)^ -R2 225 000 0.5 R/W
FV (15% x cost price)^ R333 750 0.5 R/W
i (Eff% = 10%^, Nom% = 9.57%^) 0.80% 1.0 R/W
n (3 years / 36 months)^ 36 0.5 R/W
= PMT^ R63 305.88 0.5 M
c) Calculate the after-tax net present value of acquiring, maintaining and operating machine 2 only. Clearly show irrelevant
MARKS 17.0
amounts and provide reasons for items that are irrelevant to the decision.
Communication skill - Presentation: Awarded for well presented answer, in table format (signs must be correct for marks) 1.0 R/W
Machine 2: Cash flows CF0 CF1 CF2 CF3
Initial cost -R2 225 000 0.5 R/W
Scrap value at end of useful life R400 000 0.5 R/W
Financing decision: irrelevant,
- - - - 0.5 R/W
not part of investment decision
Cost price of existing equipment:
- - - - 0.5 R/W
sunk cost thus irrelevant
Disposal of existing equipment^, CF0^ R60 000 1.0 R/W
Maintenance costs -R150 000 -R200 000 -R250 000 0.5 R/W
Maintenance cost saving R70 000 R70 000 R70 000 0.5 R/W
Inventory purchase ( ^ amount, ^ years) -R66 000 -R66 000 -R66 000 R0 1.0 M
Disposal of existing soap: (R50x100L)^, ^CF0 -R5 000 - - - 1.0 R/W
Working capital outlay^ & recovery^ -R22 000 R22 000 1.0 R/W
Tax effect (+ saving, - loss) R273 000 R180 320 R205 240
After tax cash flows -R2 258 000 R127 000 -R15 680 R447 240
Machine 2: Tax calculation CF1 CF2 CF3
Wear & tear allowances
40% x R2 225 000^ -R890 000 0.5 R/W
20% x R2 225 000^ -R445 000 -R445 000 0.5 R/W
Scrapping allowance
1.5 M
Proceeds: R400 000^ less Tax value: R445 000^ = Scrap^ R45' -R45 000
Recoupment of existing machine
R60 000 1.5 R/W
Proceeds: R60 000^ less Tax value: R0^ = Recoup^ R60'
Maintenance costs -R150 000 -R200 000 -R250 000 0.5 R/W
Maintenance cost saving (R70 000) R70 000 R70 000 R70 000 0.5 R/W
Inventory used
Year 1: 200 ÷ 220 x R66 000 -R60 000 0.5 M
Year 2: 230 ÷ 220 x R66 000 -R69 000 0.5 M
Year 3: 210 ÷ 220 x R66 000 -R63 000 0.5 M
Disposal of soap (R5 000) -R5 000 - - 0.5 M
Working capital (no tax, capital in nature, thus irrelevant) - - - 0.5 R/W
Taxable income / (loss) -R975 000 -R644 000 -R733 000
Tax effect @ 28% -R273 000 -R180 320 -R205 240 0.5 R/W
Cost of capital 14% 0.5 R/W
Net present value (machine 2), using after tax cashflows -R1 856 787.48 0.5 M
d) Determine, from a purely financial perspective, which machine would be most beneficial for Natural Weavers to acquire,
MARKS 4.0
maintain and operate.
Mutually exclusive projects with unequal useful lives: NPV can not be compared.
Equivalent annual payments to be calculated to compare projects.The replacement chain approach may be used but would be
impractical to use in this situation as machine 1 has a useful life of 4 years and machine 2 has a useful life of 3 years - closest common
denominator to have equal useful lives would be 12. Thus machine 1 would be reinvested 3 times and machine 2 would be reinvested 4
times.
Net present value (machine 1) (given) -R2 141 088.64 0.5 R/W
Net present value (machine 2) (given cashflows) CF0 CF1 CF2 CF3
-R1 912 083.07 -R2 300 000 R110 000 -R16 000 R450 000 0.5 R/W
Machine 1 Machine 2
PV (NPV) R2 141 088.64 PV (NPV) R1 912 083.07
FV 0 FV 0
i 14% i 14% 0.5 R/W
n 4 n 3 1.0 R/W
PMT -R734 831.86 PMT -R823 594.37 0.5 M
 Annual equivalent payments for machine 2 are more than machine 1. (If NPV is compared, no conclusion mark)
1.0 M
Machine 1 is thus the cheaper option. Machine 1 should be acquired.

e) Discuss the link between the financing and investing decisions of a company. (1 mark explanation, 1 mark for example) MARKS 5.0

Communication skill - Clarity of expression: Using structured sentences & understandable language. 1.0 R/W

1. Investment Decision: A financial decision which is concerned with how the company's money is invested in different assets is
known as an investment decision. An investment decision can be long-term or short-term. A long term investment decision is called a
capital budgeting decision which involves large amounts of long term investments that are irreversible except at a significant cost. 2.0 R/W
Short-term investment decisions are called working capital decisions, which affect the day to day working of a business. It includes
the decisions about the levels of cash, inventory and receivables.

2. Financing Decision: A financial decision which is concerned with the amount of finance to be raised from various long term
(permanent) sources of funds like, equity shares, preference shares, debentures, bank loans etc. is called the financing decision. In 2.0 R/W
other words, it is a decision on the ‘capital structure’ of the company.
Link: Investment returns must exceed financing costs to maximise or create shareholder wealth 1.0 BONUS