Managerial Accounting and Finance

ACCESS FOR SUCCESS IN ACCOUNTING

DEPARTMENT OF ACCOUNTANCY

Test 1

MANAGERIAL ACCOUNTING AND FINANCE

Duration: Saturday 23 April 09:00am – 10:30am

Total marks: 50

EXAMINER: Reyna Patel MODERATOR: Prof N Wood

INSTRUCTIONS TO CANDIDATES
1. This question paper is set out on pages 1 (this page) to 5 and consists of TWO
questions.
2. The requirements for the questions are set out on page 5.
3. You will be given 15 minutes to read the question paper, and 75 minutes to answer
the question.
4. Ensure your answer to each question starts on a different sheet of paper.
5. Ensure each page for marking has your:
• Surname and initials.
• Student number.
• Subject name: e.g. MAF
• Question number e.g. (a) i
• Page number e.g. P1 of 10
6. Use only blue or black ink. Do not write in pencil.
7. MAKE SURE each page of your answers is uploaded by 11:00am
8. You must abide by SAICA’s open book policy.
9. The use of non-programmable calculators is permitted.
10. Candidates’ attention is specially drawn to the necessity to provide suitable
substantiating reasons and workings in support of their answers and their treatment of
the information given in the questions where applicable.
11. Attention to expression and presentation is important. Failure to do so may cost marks.

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Managerial Accounting and Finance

Question 1 (50 marks)

LGee (Pty) Ltd manufactures and sells two products; Fridges and Stoves. The company uses
an absorption costing system for management reporting purposes. You have been provided
with the following extract of actual figures from the statement of comprehensive income for
the year ended 31 December 2021:

Fridges Stoves Total

R R R

Sales 143 735 000 81 068 000 224 803 000

Opening inventory 6 377 455 2 982 672 9 360 127
Direct material 21 809 400 11 010 675 32 820 075
Direct labour 11 247 000 7 291 350 18 538 350
Variable manufacturing overheads 7 041 600 5 126 040 12 167 640
Actual fixed manufacturing overheads 6 964 556
Other costs 4 167 810

Additional information:
1. All actual figures reported above are based on the following units:
Actual units Fridges Stoves
Opening inventory 1 285 924
Sales (7 565) (6 236)
Production 8 150 7 365
Closing inventory 1 870 2 053

2. Budgeted production units for the year ended 31 December 2021 were 8 000 units and
7 200 units for Fridges and Stoves respectively. Sales units were expected to be 7 800
for Fridges and 6 800 for Stoves. The actual selling price was in line with budget.
3. Fixed manufacturing overheads are absorbed based on direct labour hours. The
company budgeted to spend 21 direct labour hours per Fridge and 20 direct labour
hours per Stove. Total budgeted fixed manufacturing overheads were R6 864 000..
The actual labour hours incurred were 23 hours per Fridge and 18 hours per Stove.
4. Other costs include variable selling and distribution costs and fixed administrative
overheads.
5. The company applies the first-in-first-out (FIFO) method for inventory valuation
purposes.

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Managerial Accounting and Finance

Question 2
Klover (Pty) Ltd is the parent company of two subsidiary companies: Pasture (Pty) Ltd and
Flavoured Milk (Pty) Ltd. The company operates in the dairy industry and has a holistic view
on business. Each of these companies uses a different costing system as indicated in the
respective parts below.

PART A
Pasture (Pty) Ltd consists of multiple dairy farms and the nature of the business is to produce
3 products from a joint process using whole milk. The joint process produces butter, cheese
and cream.
The company uses a joint- and by-product costing system.

During the process, approximately 20% of the milk is discarded in the form of whey, dairy
sludge and wastewater. To prevent water pollution, the diary sludge and wastewater must be
disposed of. It is estimated that it will cost the company R 260 000 in the 2021 financial year
to safely dispose of this. The whey has an extremely high nutrient value and can be sold for
R20 per kilogram after processing it further. Due to its delicate nature, further processing costs
of the whey amounts to R5 per kilogram.

The following is an estimate of the cost to be incurred for the 2021 financial year regarding the
production of these 3 products:
Direct material R 1 020 000
Direct labour R 840 000
Transportation of milk R 370 000
Manufacturing overheads R 680 000

At the split-off point, one tonne of milk generates 250kg of butter, 150kg of cheese, 100kg of
cream and 500kg of whey. At this point butter is sold for R120 per kilogram, cheese is sold for
R80 per kilogram and cream is sold for R50 per kilogram.
No further processing is done on the 3 joint products. Assume that the company had no
opening or closing inventory.

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Managerial Accounting and Finance

PART B
Flavoured Milk (Pty) Ltd manufactures long life milkshakes which are sold in 500 ml bottles.
The company uses a process costing system.
The following information was provided for the month ended 30 April 2021:

1) The company had 30 000 litres of milk in opening work in progress (WIP) on 1 April 2021.
Opening WIP was 30% complete with a resulting cost of R 258 000 for material and
R 162 000 for conversion.
2) 120 000 litres of milk were put into production during the month of April 2021.
3) Litres completed and transferred to finished goods during the month were 120 000.
4) For the month of April 2021, material and conversion costs of R 1020 000 and R 780 000
respectively were incurred.
5) Evaporation occurs when the process is 70% complete, resulting in an estimated loss of
5% of the mixture.
6) Closing WIP of 20 000 litres were 60% complete.
7) The company uses the First-in-first-out (FIFO) method of inventory valuation. Material is
added in the beginning of the process and conversion takes places evenly throughout the
process.

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REQUIRED
Required: Question 1
MARKS
1.1 For LGee (Pty) Ltd for the year ended 31 December 2021 draft the 22
actual statement of comprehensive income according to the
absorption costing system, clearly indicating whether overheads
were over/under absorbed. Clearly separate the over/under
absorption between the volume and expenditure variances.

[Only the Total column is required.]

1.2 Explain the key difference between direct and absorption costing 2
systems.

Question 1 Total 24

Required: Question 2
Part A
MARKS
Ai Allocate the joint costs to the products based on the sales value at split-off 8
point method.
Aii Name 2 other methods that can be used to allocate joint costs. 2

Part B
Calculate the normal average cost to produce one unit of milkshake 12
Bi during April 2021.

Prepare the quantity statement assuming the company now makes 4

use of the weighted average method of inventory valuation and the
Bii
loss occurs at 10% completion.

Question 2 Total 26

Grand Total 50

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