MFAC7319 - Test 2 - Paper 2 - 2023 - Memorandum: Question 1.

1
M1.1 Marks SM

Price Variance

Material Standard Price Actual Price Difference Act Quantity (purchased) Variance

Silica sand R 12,00 R 8,50 R 3,50 370 000,00 R 1 295 000,00 F 1,5 1,5
Electiricity R 1,30 R 1,50 R -0,20 4 625 000,00 R -925 000,00 U 1,5

Std Price: R3 000 000 / 250 000kg = R 12,00 1 1

Std Price: R2 600 000 / 2 000 000 kWh = R 1,30 1 1

Usage Variance

Material St Quantity Act Quantity (used) Difference Standard Price Variance

Silica sand 250 000,00 345 000,00 -95 000,00 R 12,00 R -1 140 000,00 U 2 1,5
Electiricity 2 000 000,00 4 625 000,00 -2 625 000,00 R 1,30 R -3 412 500,00 U 2 2
Total 2 250 000,00 4 970 000,00 R -4 552 500,00 U

Material Mix

Actual input for actual

Actual input for actual output
Material output Difference Standard Price Variance
(standard mix)
(actual mix)

Silica sand 552 222,22 345 000,00 207 222,22 R 12,00 R 2 486 666,67 F 2
Electiricity 4 417 777,78 4 625 000,00 -207 222,22 R 1,30 R -269 388,89 U 2
Total 4 970 000,00 4 970 000,00 R 2 217 277,78 F

Material Yield
Standard input for actual Actual input for
Material output actual output Difference Standard Price Variance
(standard mix) (standard mix)
Silica sand 250 000,00 552 222,22 -302 222,22 R 12,00 R -3 626 666,67 U 2
Electiricity 2 000 000,00 4 417 777,78 -2 417 777,78 R 1,30 R -3 143 111,11 U 2
Total 2 250 000,00 4 970 000,00 R -6 769 777,78 U

Total Mat. Yield + Total Mat. Mix variance: R -4 552 500,00 Total Usage Variance: -R 4 552 500,00

Impact of loadshedding on electricity variances:

Electricity Price Variance

Material Standard Price Actual Price Difference Act Quantity (purchased) Variance

Normal Prduction R 1,30 R 1,50 R -0,20 3 940 000,00 R -788 000,00 U 1 M 1

0.5M;
Load shedding R 1,30 R 1,50 R -0,20 685 000,00 R -137 000,00 U 1
0.5
Total (agrees with electricity price variance) R -925 000,00

Normal production quantity (4 625 000 - 685 000): 3 940 000,00

Load shedding quantity: 685 000,00 (given) 0,5 0,5

Electricity Usage Variance

Material Std Quantity Act Quantity (used) Difference Standard Price Variance

Normal Prduction 2 000 000,00 3 940 000,00 -1 940 000,00 R 1,30 R -2 522 000,00 U 1 M 1

Load shedding - 685 000,00 -685 000,00 R 1,30 R -890 500,00 U 1 M 1

Total (agrees with electricity usage variance) R -3 412 500,00

available 21,5 10,5

max 13 10,5

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 MFAC7319 - Test 2 - Paper 2 - 2023 - Memorandum: Question 1.2
M1.2 Marks SM

Silica Sand Usage Variance

The unfavourable silica sand usage variance indicates more sand was used than budgeted (0.5). This could be due to lower quality sand being used as it was
1,5
cheaper than expected (R8.5 vs R12) (1)
If the silica sand was of a lower quality, it may result in more rejections during the testing stage and further deterioration of plant and equipment, resulting in a
1
further reduction in profitability.
Silica Sand Price Variance
The favourable silica sand price variance indicates a better price was paid for silica sand than budgeted (0.5). This could be due to the bulk discount purchase of
1,5 1,5
sand during August (1).
Another possible reason for the favourable price variance is the new supplier for the sand purchases. In negotiating with the new supplier, the company was able
1 1
to negotiate for a cheaper price.
Electricity Usage Variance

The unfavourable electricity usage variance indicates more electricity was used than budgeted (0.5). The reasons for this variance could include: 0,5 0,5

- An entire batch had to be reworked due to unscheduled load shedding. 1 1

- The potentially lower quality sand, possibly requires more energy during processing. 1 1
Electricity Price Variance
The unfavourable electricity price variance indicates a higher price was paid for electricity than budgeted (0.5). This is due to the unexpected increase in price by
1,5 1,5
the municipality (1).
The impact of electricity supply was material and unpredictable (1): unexpected price hikes and unscheduled load shedding (0.5). This might be an ongoing thing,
2,5
CelluTech might need to consider alternative sources of energy (1).
Other valid points 3
Available 14,5 6,5
Maximum 7 6,5
 MFAC7319 - Test 2 - Paper 2 - 2023 - Memorandum: Question 1.3
M1.3 Marks SM

Holding cost per kilogram R10 + (R8.5 x 10%) R 10,85 1,5 M 1,5
The most accurate price is the R8.5 offered by the new supplier
Cost per kilogram R 8,50
(ChipSupplies) in August 2022
WACC 10%
Order cost (given) R 350,00
Demand "The August 2022 actual production is likely to be an accurate
estimate for monthly production going forward." 4 140 000,00 kg 0,5 0
Therefore: 345 000kg x 12 months

Economic Order Quantity (EOQ)

EOQ √((2 x Demand x OC per order)/HC per litre)
√((2 x 4.14 million kg x R350)/R10.85) 16 343,10 kg 1,5 M 1,5
rounded-up 16 344,00 kg
Ordering Costs (Demand/Order Quantity) x order costs
Number of orders: (Demand/Order Quantity)
4.14 million kg/16 344 kg 253,30 0,5 M
rounded-up 254,00 0,5 M
# of orders x R350 R 88 900,00 0,5 M 1,5
Holding Costs Order Quantity / 2 x holding cost per litre
16 344kg / 2 x R10.85 R 88 666,20 0,5 M 0,5
Total Costs R 177 566,20 0,5 M 0,5
Discount Scenario
Discount orders (given) 20 000,00
Ordering Costs (Demand/Order Quantity) x order costs
4.14 million kg/20 000 kg x R350 R 72 450,00 1 M 1
Holding Costs Order Quantity / 2 x holding cost per litre
20 000 kg / 2 x R10.85 R 108 500,00 1 M 1
Direct Material Costs 4.14 million kg x R8.50 R 35 190 000,00
Discount Saving R35 190 000 x 0.1% discount R -35 190,00 1 M 0,5
Total Costs R 145 760,00 0,5 M 0,5

The discount offer should be taken as it results in the lowest cost 0,5 M 0,5

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 MFAC7319 - Test 2 - Paper 4 - 2023 - Memorandum: Question 1.1
M1.1 Marks SM

Planned production in June, July and August 2023 Machine hours

IndoorClassic machine hours (8 500 / 50) 170 1

WeatherGuard machine hours (5 000 / 25) 200 1 0,5
Total hours used for production (170 + 200) 370 0,5
Available hours (7 800 / 12) 650 1 1
Spare Capacity (650 - 370) 280 0,5
Construction2000 order machine hours
120 1 0
(9 000 / 25 = 360 machine hours; 360 / 3 months)
Additional capacity after special order (280 - 120) 160

Therefore, sufficient capacity 1 1

ALTERNATIVE - ANNUALISED
Annualised Planned production - 2023 Machine hours
IndoorClassic machine hours ((8 500 x 11 months) + 6500) / 50 2000 1
WeatherGuard machine hours ((5 000 x 10 months) / 25) 2000 1
Total hours used for production (2 000 + 2 000) 4000 0,5
Available hours 7800 1
Spare Capacity (7 800 - 4 000) 3800 0,5
Construction2000 order machine hours (for 3 months)
360 1
(9 000 / 25 )
Additional capacity after special order (3800 - 360) 3440
Therefore, sufficient capacity 1
6 2,5

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 MFAC7319 - Test 2 - Paper 4 - 2023 - Memorandum: Question 1.2
M1.2 Marks SM

Revenue R 5 800 000,00 0,5 0,5

Cost -R 5 462 500,00
Material Cost (9 000 x (R270 + R7.5)) -R 2 497 500,00 1 1
Direct Labour (9 000 x R175) -R 1 575 000,00 1 0,5
Variable Manufacturing Overheads (R130① x 9 000) -R 1 170 000,00 1 M
Fixed manufacturing Overheads R 0,00 0,5 0,5
- Irrelevant Cost - Commited Cost 0,5 0
Capital purchase - specific to order and no intention to produce in future so no
-R 220 000,00 1 0
amortization
Increased/decreased profit R 337 500,00 1 M 1
① Variable Manufacturing Overheads
(High-Low method to determine variable costs)
Cost (R):
High Level (150 000 containers x R110): R 16 500 000,00 1
Low Level (budgeted overheads given) R 12 000 000,00 0,5
Difference R 4 500 000,00 0,5
Activity (containers):
High Level (extra scenario) 150 000 0,5
Low level (budget: 8 500 units x 11 months + 6 500 units for December OR R12
100 000 1
million/R120)
Difference 50 000 0,5
Variable Costs (IndoorClassic) (R4.5 million / 50 000 differnece) R 90,00 0,5 M 4,5
Total manufacturing overhead (IndoorClassic) R 120,00
Difference = Fixed manufacturing overhead (120 - 90) R 30,00 0,5 0,5

WeatherGuard:
Total manufacturing overhead R 160,00 0,5 0,5
Fixed maufacturing overhead (same for both): R 30,00 1 1
Difference = Variable manufacturing overhead (160 - 30) R 130,00 1 1
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 MFAC7319 - Test 2 - Paper 4 - 2023 - Memorandum: Question 1.3
M1.3 Marks SM

Pricing per container is R644.44 (R5.8 million / 9 000 units) (1) which is lower than current selling price of R780 for standard WeatherGuard
range, and other customers may insist on lower price (1) 2 1

The potential to supply Construction2000 products in future – pricing levels therefore set now, to the disadvantage of Deluxe Paints. 1

Potential to supply in future – advantage of a possibility of repeat order for special paint? 1

Any competitive offers to supply Construction2000? 1

Order will result in increased profit of approximately R337 500 1 M

Is R337 500 profit sufficient? Any more lucrative options available? 1

Risk of not being able to produce finished product as requested due to technical expertise required– sheen effect, etc. 1
What effect will the special order have on the machinery of Deluxe Paints? Consider additional wear & tear, maintenance or break-downs 1
Consider the timing of the cash flows – when will revenue be received/ how will material, labour and overheads be financed until payment
1
of the order is received?
Will there be a charge for the development of new pigments? 1
How reliable is Construction2000? Any possibility of non-payment? 1 1
What about additional fixed costs? The profitability figure above assumes fixed cost is sunk, but how certain is it that fixed costs will not
1
increase due to this order?
Consider if the machinery is sold on completion of the special contract or if additional contracts are received 1
Why not rent the machine, rather than buy it? 1
Does the company have the technical competencies to run this machine? 1

Will it be possible to obtain the necessary materials, and on time? (Only one supplier of colourants). 1

Is there additional training required to work the new machine? 1

Wear and tear allowances need to be considered 1
Other valid points 2 2
Available 21 4
Maximum 10 4