TEST 2

MODULE DESCRIPTION : MANAGEMENT ACCOUNTING 3A

MODULE CODE : RGKV301

FACULTY : BUSINESS AND ECONOMIC SCIENCES

QUALIFICATION : BACHELOR OF COMMERCE

DATE : 6 MAY 2022

DURATION (IN MINUTES) : 90 MINUTES

TOTAL MARKS : 50 MARKS

PAGES : 7 (INCLUDING COVER PAGE)

EXAMINER : MR L JACOBUS

MODERATOR : MR K FREEMAN

INSTRUCTIONS

1. Attempt all questions.

2. Show all workings clearly and round to two decimals, unless stated
otherwise.
3. If necessary, state any assumptions that you have made.
4. The use of financial calculators are permitted. Show all keystrokes.
5. All final answers must be in ink.

THIS PAPER CONSISTS OF THREE QUESTIONS

QUESTION MARKS MINUTES
Question 1 23 41.4
Question 2 14 25.2
Question 3 13 23.4
50 90
 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2022

QUESTION 1 (23 MARKS : 41.4 MINUTES)

Stimrol (Pty) Ltd (Stimrol) is a manufacturer of chewing gum. There are two processes
in manufacturing the chewing gum namely, Mixing & Extruding and Cutting &
Packaging.

Mixing & Extruding

During the mixing process, the gum base, colouring, flavouring, glucose and dextrose
(a powdered sweetener) is poured into a mixer and the ingredients are heated and
blended together until the mixture reaches the consistency of bread dough.

The mixture is then transferred to a pre-extruder that is used to shape the mixture into
manageable strips that will go through the extruder. The extruder squeezes each strip
into the size of gum that will then be cut into bite-size chewing gum. Due to heat
experienced during this process, the gum is stored in a cooling chamber until it reaches
cooling temperatures of between 3 - 7°C.

Cutting & Packaging

Once the cooling temperature is reached a machine is used to cut the gum into bite-
size chewing gum. The bite-size chewing gum is then inspected and packaged at the
end of the process. All the material in this process is added at the end. The expected
loss in the process is 5%.

The management of Stimrol requested your assistance with performing the inventory
valuation for the year ended 28 February 2022 and has provided you with the following
information:

Cutting &
Packaging
Costs data
Opening work in progress
Previous process cost R18.50 p/kg
Material R570
Labour & overheads R18 240

Current period
Previous process cost R509 787
Material R5 560
Labour & overheads R81 600

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 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2022

The following production data in units was also provided:

Cutting &
Packaging
Production data in units
Opening work in progress 2 040 kg
Stage of completion 40%
Introduced 27 270 kg
Abnormal loss 97 kg
Closing work in progress 7 250 kg
Stage of completion 50%

Additional information:
• Stimrol uses the FIFO method for inventory valuation.
• Any normal and abnormal losses identified relate to units started during the
current period.

Required: Marks
1. Explain to management the accounting treatment of the normal and 4
abnormal losses that occurred during the cutting & packaging process.

2. Prepare the process account (T-account) for the cutting & packaging 4
process for the year ended 28 February 2022.

3. Calculate the equivalent units of production for the year ended 28 February 6
2022, using the equivalent units table.

4. Calculate the value of completed units and closing work in progress for the 9
year ended 28 February 2022.

3
 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2022

QUESTION 2 (14 MARKS : 25.2 MINUTES)

Cubana Café is one of the most popular restaurant and nightlife destinations in
Gqeberha.

The management of Cubana Café noted significant deviations between its budgeted
and actual financial results in its quarterly management report. Upon enquiry it was
noted that budgets are set by the financial accountant at the beginning of the financial
year using the prior year’s accounts as a basis. The financial accountant prepares the
annual budget and then computes the monthly budget by dividing the budget by
twelve.

In addition to management’s concern about the budgeting process, management

approached you, the management accountant, to perform a variance analysis for one
of its most sought-after alcoholic beverages, the Daiquiri.

The standard mix to make one Daiquiri is as follows:

Ingredients Input Standard cost

White rum 210ml R220 per 750ml
Lime juice 70ml R75 per 750ml
Syrup 70ml R60 per 1 litres

The following purchases were made during the year:

R
7 530 litress of white rum 2 296 650
2 800 litress of lime juice 298 200
2 450 litress of syrup 154 350

The following quantities of ingredients were used during the year:

White rum 6 625 litress

Lime juice 2 120 litress
Syrup 1 060 litress

Cubana Café sold 26 500 Daiquiris during the year.

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 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2022

Required: Marks
1. Critically evaluate the current way in which Cubana Café establishes the 4
monthly budget. In addition, briefly describe one other method of budgeting
which may be used by a restaurant and nightlife destination like Cubana
Café.

2. Calculate the material mix and yield variances in as much detail as possible. 10

5
 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2022

QUESTION 3 (13 MARKS : 23.4 MINUTES)

Telcomm Ltd (Telcomm) is a company specialising in the provision of telephone

systems for telemarketing and insurance companies.

Telcomm has recently been approached by Young Mutual for a quote to upgrade its
telephone system due to increased call volumes. Young Mutual is one of the fastest
growing insurance companies in the country and as a result, Telcomm is hopeful of
future business with Young Mutual. Telcomm is therefore keen to quote a competitive
price for the job. The following information should be considered:

1. One of Telcomm’s sales consultants has already visited Young Mutual to give them
a demonstration of the new system, the cost of which totalled R4 500.

2. The installation is expected to take one week to complete and would require three
telephone technicians, each of whom is paid a monthly salary of R54 000. Due to
increased demand for the telephone systems, the three technicians would have to
be reallocated from the YourWay contract to the Young Mutual contract in order to
complete the job. As no other technicians are available, Telcomm would miss its
contractual completion deadline for the YourWay contract by one week. As a result,
Telcomm would have to pay a once-off penalty of R7 950 but would still complete
the YourWay contract after finishing the Young Mutual job.

3. Telcomm’s systems advisor would also need to dedicate eight hours of his time to
the job. He is working at full capacity, so he would have to work overtime in order
to do this. He is paid an hourly rate of R635. The overtime rate is 1.5 times the
normal wage rate.

4. An independent site inspector would need to visit Young Mutual twice to approve
the completed work. Since he is not employed by Telcomm, he would charge
Young Mutual directly for the work. His cost is R3 150 for each visit made.

5. Telcomm’s systems trainer would need to spend two days at Young Mutual
delivering training. He is paid a monthly salary of R23 900 but also receives
commission of R1 990 for each day spent delivering training at a client’s site.

6. 90 telephone handsets that are compatible with the new system would need to be
supplied to Young Mutual. The replacement cost of these is R295 each, although
Telcomm already has 35 handsets in inventory. These were bought at a price of
R260 each. The handsets are the most popular model on the market and frequently
requested by Telcomm’s customers.

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 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2022

7. Young Mutual would also need a telephone management system (TMS) called
‘TMS 2.0’. The current market price of TMS 2.0 is R172 100, although Telcomm
has an older version of the system, ‘TMS 1.0’, in inventory, which could be modified
at a cost of R73 300. Telcomm paid R86 000 for TMS 1.0 when it was bought a
year ago and has no other use for it. The current market price of TMS 1.0 is
R86 850.

8. 1,500 metres of cable would be required to install the system. The cable is regularly
used by Telcomm and it has 300 metres in inventory, which cost R20 per metre.
The current replacement cost for the cable is R21 per metre.

Required: Marks

Prepare a cost statement, using relevant costing principles, showing the

minimum price that Telcomm should charge for the Young Mutual installation 13
job. Clearly indicate why you have included or excluded costs from your cost
statement and show all your workings.

ACCA Adapted