HW 2 (32 marks, 48 minutes)

A Ltd manufactures mouse pads and currently uses an absorption costing system.

The budgeted cost per unit is as follows:

Selling price R 60

Direct material R 15

Direct labour R 10

Variable overhead R ?

Fixed cost R ?

The actual sales was 12 000 units for the period. There was 1 200 units in opening
inventory and 2 000 units in closing inventory.

The fixed overhead rate is based on a normal production of 11 000 units.

The actual selling price and variable cost was as per budget.

At the beginning of the financial year the production manager made the following
estimates:

If production was set at 5 000 mouse pads, the total production overhead cost will be
R200 000, but if A Ltd manufactured 13 000 mouse pads, then the total production
overhead cost will be R 256 000.

The actual total production overhead cost for the current production level was R 269 600.

REQUIRED:

1. Compile an income statement on an absorption costing system. (22)

2. Calculate the following ratios for A Ltd based on the actual results:
2.1 Break-even (units) (2)
2.2 Break even in sales (2)
2.3 Profit-volume ratio (2)
2.4 Safety margin (2)
2.5 Profit Ratio (2)