FACULTY OF COMMERCE, ADMINISTRATION AND LAW

DEPARTMENT OF ACCOUNTING AND AUDITING

TEST ONE – FIRST SEMESTER 2023

2AMA301 – MANAGEMENT ACCOUNTING AND FINANCE 3A

DURATION: 90 MINUTES

FULL MARKS: 50

Internal Examiner

Ms A Soldat

Internal Moderator

Mr I Vally

INSTRUCTIONS:

(a) This question paper, including this cover page, consists of 4 pages. Please
check that you have all pages.

(b) Answer ALL questions.

(c) Show all your workings.

(d) Use blue or black ink – marks will not be awarded for any answers in pencil,
red ink or green ink. The use of correction fluid is prohibited.
Question One (44 marks – 79 minutes)

Home Comfort (HC) manufactures pillows, blankets and sheets that are sold in home
decorating stores for R200, R500, and R150 per unit respectively.

Management of HC is in the process of generating the budget for the year ended 31
March 2024. The following information is available:

• Direct materials utilised in the production of pillows is expected to cost R35 per
unit. This is half of the expected direct material cost of one blanket and 140%
of the expected direct material cost of one sheet.
• Direct labour is expected to cost R28 per hour. Direct labour hours required to
manufacture one pillow, one blanket and one sheet are 2,5, and 1, respectively.
• Normal budgeted fixed manufacturing overhead for the year is R20 000 000.
• Selling and distribution costs are budgeted according to the following cost-
volume relationship:

Total Cost R1 300 000 R1 390 000 R1 460 000

Total activity - units 350 000 380 000 430 000

• Administration costs, which are all fixed, are projected to amount to R300 000.
• The organisation will have no opening inventory at the beginning of April 2023.
• Planned production and sales (in units) for the coming year are:
Pillows Blankets Sheets
Production 250 000 50 000 100 000
Sales 230 000 45 000 100 000

Required Marks
1. Prepare a budgeted income statement for HC for the year ended 31 13
March 2024 using the absorption costing basis. Assume that fixed
manufacturing overheads are allocated to the cost of production
based on normal production levels.
2. Prepare a budgeted income statement for HC for the year ended 31 5
March 2024 using the variable costing basis.
3. Reconcile the total projected profits under each method and explain 3
the nature of all reconciling items.
4. Assuming the sales mix remains as budgeted, determine how many 9
units of each product HC must sell in order to break even in the
coming year.
5. Calculate the projected margin of safety in Rands for the coming year. 3
6. Assume that the budget for the year ended 31 March 2024 is 4
achieved. Calculate what the percentage change in net profit in the
year ended 31 March 2025 will be if total sales increases by 10% in
the 2025 financial year.
7. Assume that actual fixed manufacturing overheads for the year ended 4
31 March 2024 amounts to R22 000 000, and total actual production
for the year amounts to 380 000 units.
Reflect the under/overallocation of fixed manufacturing overheads in
the Fixed Manufacturing Overheads Control Account in the general
ledger.
8. Indicate whether the adjustment for under/overallocation of fixed 1
manufacturing overhead calculated in question 7 (above) will increase
or decrease net profit for the year ended 31 March 2024.
Presentation and communication 2
Total 44
Question Two (6 marks – 11 minutes)

The following analysis of costs has been prepared by the management accountant of
SA Paints. The activity-based costing approach was utilised for the analysis. The entity
manufactures red paint called “Red Marine” and green paint called “Green Exterior”.

Required Marks
1. Demonstrate your understanding of the above analysis by explaining:
a. why some costs have not been allocated to products (i.e. “Rent
and general plant-related expenses” and “marketing of SA 2
Paints’ products in general”).
b. What is meant by “unused capacity” and how this has arisen.
3
Clarity of expression 1
Total 6

END OF PAPER