n Am I 8 I A U n IVERS I TY

OF SCIEnCE AnD TECHnOLOGY

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE

QUALIFICATION: BACHELOR OF ACCOUNTING

QUALIFICATION CODE: 07BAC LEVEL: 7

COURSE NAME: COST AND MANAGEMENT

COURSE CODE: CMA612s
ACCOUNTING 202

SESSION: JANUARY 2017 PAPER: THEORY AND CALCULATIONS

DURATION: 3 HOURS MARKS: 100

SECOND OPPORTUNITY EXAMINATION QUESTION PAPER

EXAMINER(S} L. Wale, H. Namwandi and A. Makosa

MODERATOR: K. Boamah

INSTRUCTIONS
1. Answer ALL the questions.
2. Write clearly and neatly.
3. Number the answers clearly.

PERMISSIBLE MATERIALS

1. Scientific calculators
2.
3.

THIS QUESTION PAPER CONSISTS OF _5_ PAGES (Excluding this front page}
Question 1 (20 marks)

CDF is a manufacturing company within the DF group. CDF has been asked to provide a
quotation for a contract for a new customer and is aware that this could lead to further
orders. As a consequence, CDF will produce the quotation by using relevant costing instead
of its usual method of full cost plus pricing.

The following information has been obtained in relation to the contract:

Material D: 40 tonnes of material D would be required . This material is in regular use by CDF
and has a current purchase price of N$38 per tonne. Currently, there are 5 tonnes in
inventory which cost N$35 per tonne. The resale value of the material in inventory is N$24
per tonne.

Components: 4 000 components would be required . These could be bought externally for
N$15 each or alternatively they could be supplied by RDF, another company within the DF
manufacturing group. The variable cost of the component if it were manufactured by RDF
would be N$8 per unit, and RDF adds 30% to its variable cost to contribute to its fixed costs
plus a further 20% to this total cost in order to set its internal transfer price. RDF has
sufficient capacity to produce 2 500 components without affecting its ability to satisfy its
own external customers. However, in order to make the extra 1 500 components required
by CDF, RDF would have to forgo other external sales of N$50 000 which have a contribution
to sales ratio of 40%.

Labour hours: 850 direct labour hours would be required. All direct labour within CDF is
paid on an hourly basis with no guaranteed wage agreement. The grade of labour required
is currently paid N$10 per hour, but department W is already working at 100% capacity.
Possible ways of overcoming this problem are :
• Use workers in department Z, because it has sufficient capacity. These workers are
paid N$15 per hour.
• Arrange for sub-contract workers to undertake some of the other work that is
performed in department W. The sub-contract workers would cost N$13 per hour.

Specialist machine: The contract would require a specialist machine. The machine could be
hired for N$15 000 or it could be bought for N$50 000. At the end of the contract if the
machine were bought, it could be sold for N$30 000. Alternatively, it could be modified at a
cost of N$5 000 and then used on other contracts instead of buying another essential
machine that would cost N$45 000. The operating costs of the machine are payable by CDF
whether it hires or buys the machine. These costs would total N$12 000 in respect of the
new contract.
Supervisor: The contract would be supervised by an existing manager who is paid an annual
salary of N$50 000 and has sufficient capacity to carry out this supervision. The manager
would receive a bonus of N$500 for the additional work.
Development time: 15 hours of development time at a cost of N$3 000 have already been
worked in determining the resource requirements of the contract.

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Fixed overhead absorption rate: CDF uses an absorption rate of N$20 per direct labour hour
to recover its general fixed overhead costs. This includes $5 per hour for depreciation .

Required:
Calculate the relevant cost of each cost item. Furthermore, you need to explain why any
cost values are relevant or irrelevant to the contract cost. (20 marks)

Question 2 {25 marks)

Gobabis Limited produces toy trucks and uses a variable standard costing system. Its

budget and actual results for December 2015 were as follows:

Budget Actual

Production units (No opening inventory) 15 000 16 000

Sales units 15 000 14400

N$ N$

Sales value 600 000 604 800

Total cost of materials:

-Wood (Standard 2 metres per unit) 150 000 192 000

-Paint (Standard 1 Litre per unit) 60 000 60000

Total labour cost (Standard N$50 & Actual N$48 per hour) 100 000 120 000

Total production overheads 200 000 170 000

Variable production overheads per labour hour 25 24

Administration and sell ing expenses 80000 78 800

There was no opening or closing inventory of materials and budgeted equalled actual fixed

(in total) and variable (per unit sold) administration and selling expenses.

Actual metres used for wood is 32 000 and actuallitres used for paint is 20 000.

Required:

a) Calculate all possible variances for Gobabis Limited . (16 marks)

b) It has been said that a standard costing system is not appropriate in a Total Quality

Management (TQM) environment. Why would this be so? (5 marks)

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 c) State four arguments to support the use of variable costing. (4 marks}

Question 3 (ZO marks)

A company has developed a new product. Details are as follows:

Selling price and product life cycle

The product will have a life cycle of 10 000 units. It is estimated that the first 9 000 units will

be sold for N$124 each and then the product will enter the "decline" stage of its life cycle. It

is difficult to forecast the selling price for the 1 000 units that will be sold during this stage.

Costs

Labour will be paid at N$12 per hour. Other variable costs will be N$38 per unit. Fixed costs

will total N$80 000 over the life cycle of the product. The labour rate and both fixed and

variable costs will not change throughout the product's life cycle.

Learning curve

The first batch of 100 units will take 1 500 labour hours to produce. There will be an 85%

learning curve that will continue until 6 400 units have been produced. Batches after this

level will each take the same amount of time as the 64th batch. The batch size will always be

100 units.

Required:

Calculate

a} the cumulative average time per batch for the first 64 batches. (3 marks}

b) the time taken for the 64th batch. (4 marks}

c) the average selling price of the final 1 000 units that will allow the company to earn a

total profit of N$100 000 from the product. (7 marks}

d) Explain any three uses of the learning curve (6 marks}

Note: The learning index for an 85% learning curve is -0.2345

Ignore the time value of money.

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Question 4 (25 marks)

A division of Bud pic is engaged in the manual assembly of finished products F1 and F2 from
bought in components. These products are sold to external customers. The budgeted sales
volume and prices for month 9 are as follows:

Product Units Price

F1 34 000 N$50
F2 58 000 N$30

Finished goods inventory holding budgeted for the end of month 9 is 1 000 units of F1 and
2 000 units of F2 with no stock at the beginning of that month . The purchased components
C3 and C4 are used in the finished products in the quantities shown below. The unit price is
for just-in-time delivery of the components . The company holds no component stocks.

Components
Product C3 C4
F1 (per unit) 8 units 4 units
F2 (per unit) 4 units 3 units
Price (each) N$1.25 N$1.80

The standard direct labour times and labour rates and the budgeted monthly manufacturing
overhead costs for the assembly and finishing departments for month 9 are given below:

Product Assembly Finishing

F1 (per unit) 30 minutes 12 minutes
F2 (per unit) 15 minutes 10 minutes
Labour rate (per hour) N$10 N$12
Manufacturing overhead cost for the month N$617 500 N$204 000

Every month a predetermined direct labour hour recovery rate is computed in each
department for manufacturing overhead and appl ied to items produced in that month.

The selling overhead of N$344 000 per month is applied to products based on a
predetermined percentage of the budgeted sales value in each month .

Required:

a) Prepare summaries of the following budgets for month 9

i. Component purchase and usage (units and value) (4 marks)
ii. Direct labour (hours and value) (2 marks)
iii. Departmental manufacturing overhead recovery rates (1 mark)
iv. Selling overhead recovery rate (1 mark)
v. Inventory value at the month end (1 mark)

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 b) Tabulate the standard unit cost and profit of each of F1 and F2 in month 9.
(11 marks)
c) Prepare a budgeted profit and loss account for month 9 which clearly incorporates
the budgeted values obtained in (a) above. (5 marks)

Question 6 (10 marks)

On weekends Japie Moller spends his spare time to carve toy figures from wood. The two
types of toys that he carves are the Incredible Hulk and Iron Man. Each Incredible Hulk
needs 15 minutes of machine time and 12 minutes finishing time, while every Iron Man
requires 20 minutes machine time and 10 minutes finishing time. Only Japie operates the
machine, and he has only 15 hours available. A worker with an available time of 10 hours
does the finishing. Japie received an order for 15 Iron Man toys (which still need to be
produced) for next week. Usually Japie sells all the toys he produces. Incredible Hulk toys
make a contribution of N$8 per toy and Iron Man gives a contribution of N$9 per toy.

Required:

Use the graphical method and determine the optimum combination of the toy men to be
made and sold in order to make optimum profits, by algebraically determining the profit at
each intersect within the feasible region. (10 marks)

Round down to the lower unit. E.g. 3.6 becomes 3.

END OF EXAMINATION QUESTION PAPER

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