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1 Page 1 of 8 ASSIGNMENT 2 nd SEMESTER : NAGEMENT ACCOUNTING () STUDY UNITS COVERED : STUDY UNITS 1-3 DUE DATE : 3:00 p.m. 21 AUGUST 2012 TOTAL RKS : 100 INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete Instructions to Students for Completing and Submitting Assignments must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1. You are required to submit ONE assignment per subject. 2. The assignment will contribute 20% towards the final examination mark, and the other 80% will be made up from the examination, however the examination papers will count out of 100%. 3. Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4. Number all the pages of your assignment (e.g. page 1 of 4) and write your name and surname, student number and subject at the top of each page. 5. The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations. 6. A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment. 7. Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM. 8. The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 21 August Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 21 August 2012 and up to 5:00 p.m. the following day, after which no assignments will be accepted. 9. If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM GSM website, on Friday, 5 October 2012.
2 Page 2 of 8 SPECIFIC INSTRUCTIONS Answer ALL questions The use of calculators is permitted. Show ALL calculations. Read all questions carefully to determine exactly what is required before attempting to answer. Number your answers clearly and set them out under appropriate headings and sub-headings. ANSWER ALL THE QUESTIONS QUESTION 1 [17] The management accountant of Growth Point Industries has extracted the following balances for the year ended 31 March R 000 Sales ( units) Marketing expense Depreciation administrative 129 factory 490 Bank charges 161 Finance charges (Interest) 98 Direct labour costs selling and admin staff factory assemblers Raw materials Sales expenses 128 Packaging costs Variable overheads Additional Information: 1. The budgeted fixed overheads of R per year is based on budgeted production of units per year. Included in the overheads is the factory depreciation. Growth Point produced units for the year ended March The factory assemblers salary costs as well as the sales expenses are fixed in nature. 3. Completed units on hand on 1 April 2011, units, were valued at R120 per unit, of which R50 was fixed. 4. The management accountant has not yet accounted for commission on sales of R11 per unit sold for the year ended March The product is not classified as a finished good until it is fully packaged. 6. Raw materials has a zero balance at the end of the current financial year. 1.1 Assuming that variable costing is applied; calculate the cost of sales figure that would be reported on the income statement for the year ended 31 March (8) 1.2 Using the figure calculated in 1.1 above, complete the variable costing income statement for Growth Point Industries for the year ended March (9)
3 Page 3 of 8 QUESTION 2 [30] Great Cakers (GC) has been in the food processing business for 3 years. For its first two years its sole product was Madeira cakes. All cakes were manufactured and packaged in 1-kilogram units. A normal costing system was used by GC. The two direct-cost categories were direct materials and direct manufacturing labour. The sole indirect manufacturing cost category, manufacturing overhead, was allocated to products using a units of production allocation base. In its 3 rd year (2011), GC added a second product, double chocolate cake, that was packaged in 1-kilogram units. This product differs from the Madeira cake in several ways: More expensive ingredients are used More direct manufacturing labour time is required More complex manufacturing is required. In 2011, GC continued to use its existing costing system where a unit of production of either cake was weighed the same. Direct materials costs in 2011 were R3.00 per kg of Madeira cake and R4.50 per kg of double chocolate cake. Direct manufacturing labour costs in 2011 were R0.70 per kg of Madeira cake and R1.00 per kg of layered double chocolate cake. During 2011, GC sales staff reported greater than expected sales of double chocolate cake and less Madeira cake as below: BUDGET ACTUAL Madeira cake kg kg Double chocolate cake kg kg The budgeted manufacturing overhead for 2011 was R At the end of 2011, Dave Cleever, the accountant of GC, decided to investigate how the use of an activity based costing system would affect the product cost numbers. After consultation with the operating personnel the single manufacturing overhead cost pool was subdivided into five activity areas. These activity areas, their driver, their 2011 budgeted cost activity and driver units used per kg of each cake are as follows: Activity Driver Driver units Budgeted Driver units per kg of cost activity per kg of chocolate (R) Madeira cake cake Mixing Labour time Cooking Oven time Cooling Cooling time Icing Machine time Packaging Machine time Note the driver units are PER KILOGRAM of cake which relate to the budgeted kilograms of and given above.
4 Page 4 of Calculate the budgeted manufacturing overhead rate for (2) 2.2 Calculate the 2011 total unit product cost per cake using the normal costing system (i.e. per kilogram unit of cake). Use the following table as a guide to lay out your answer: Details Madeira cake Chocolate cake Direct materials Direct manufacturing labour Total direct manufacturing costs Manufacturing overhead Total product cost per unit (5) 2.3 Calculate the 2011 total unit product cost per cake using the ABC system (remember that only the manufacturing overheads will differ between the two systems). Use the table below as a guide to lay out your answer: Details Madeira cake Chocolate cake Total direct manufacturing costs Unit indirect manufacturing costs: Mixing Cooking Cooling Icing Packaging Total manufacturing cost per unit Remember this is only a guide! Ensure that you show all your calculations to gain marks. (18) 2.4 In a short paragraph identify the key differences between the two systems mentioned above and outline the differences in product costs calculated in 2.1 and 2.2. (5)
5 Page 5 of 8 QUESTION 3 [10] The Hover House Company is preparing budgets for the second quarter ending June 30. You have been asked to assist with the sales budget and aspects relating to it. Budgeted sales (at a selling price of R10 per unit) of the company s only product for the next five months are: Month Units April May June July August Additional information: All sales are made on credit. The company collects 70% of these credit sales in the month of the sale, 25% are collected in the month following the sale and the remaining 5% are uncollectible. The accounts receivable/trade debtors balance on March 31 was R All of this balance was collectible in April. 3.1 Prepare a simple sales budget indicating the total sales for the second quarter. (4) 3.2 Prepare a schedule of expected cash collections from debtors for the second quarter. (6)
6 Page 6 of 8 QUESTION 4 [30] Rapid Retailers, a manufacturer of quality handmade ceramic bowls, has experienced a steady growth in sales for the past five years. However, increased competition has led Mr Lewis, the managing director, to believe that an aggressive marketing campaign will be necessary in the next year to maintain the company s present growth. To prepare for the next year s marketing campaign, the company s controller has prepared and presented Mr Lewis with the following data for the current year, 2011: Variable costs (per bowl) R Direct manufacturing labour Direct materials Variable overhead (manufacturing, marketing distribution, customer service and admin) Total variable costs Fixed costs R Manufacturing Marketing, distribution and customer service Administrative Selling price per bowl R Expected revenues, 2011 ( units) R Calculate the projected profit for 2011 and the contribution margin %. (6) 4.2 Calculate the break-even point in units for (3) 4.3 Mr Lewis has set the revenue target for 2012 at a level of R (or bowls). He believes an additional marketing cost of R for advertising in 2012, with all other costs remaining constant, will be necessary to attain the revenue target. Calculate the projected profit for 2012 if the additional R is spent and the revenue target is met. (5) 4.4 Calculate the break-even point in revenue and units for 2012 if the additional R is spent on advertising. (4) 4.5 Sketch a basic break-even chart/graph using the information calculated in 4.4 above. (Be sure to provide a title for the chart, accurately label all axes, graphs and clearly identify and label the break-even point.) (6) 4.6 If the additional R is spent on advertising in 2012, calculate the required 2012 sales revenue in order to get the 2012 profit to equal that of (3) 4.7 At a sales level of units, calculate the maximum amount that can be spent on advertising if a 2012 profit of R is desired. (3)
7 Page 7 of 8 QUESTION 5 [13] Bullers Best Company (BBCo) is a wholesale furniture company which supplies furniture to three local retailers, Able and Co, Builderz Blocks and Craddock Suppliers. The table of information below represents the revenues and costs of BBCo by customers for the 2010 year. Additional information on BBCo s costs for different activities at various levels of the cost hierarchy is as follows: Different areas of the warehouse stock furniture for different customers. Materials, handling equipment in an area and depreciation costs on the equipment are identified with individual customer accounts. Any equipment not used remains idle. BBCo allocates rent to each customer account on the basis of the amount of warehouse space occupied by the products to be shipped to that customer. Marketing costs vary with the number of sales visits made to customer. Purchase-order costs vary with the number of purchase orders received; delivery-processing costs vary with the number of shipments made. Able & Co Bulderz Craddock Total Blocks Suppliers Sales Cost of goods sold Materials handling labour Materials handling equipment cost written off as depreciation Rent Marketing support Purchase orders and delivery processing General administration Total operating costs Operating income (loss) R R R(23 000) R BBCo s manager believes that Craddock Suppliers is not performing based on numerous reasons. BBCo is considering several possible actions with respect to the Craddock account and wishes to ask for your assistance in analysing the possibility of dropping the account. The following information is available with regard to dropping the Craddock account: Dropping the account will save cost of goods sold, materials handling labour, marketing support, purchase-order, and delivery-processing costs incurred on the Craddock account. Dropping the account will mean that the warehouse space currently occupied by products for Craddock and the equipment used to move them will become idle. Dropping the account will have no effect on fixed general administration costs. Taking all relevant information into account, prepare a schedule indicating whether dropping the Craddock Suppliers account will benefit BBCo in the long run. State a brief conclusion based on your calculations. Also go on to suggest one other way
8 Page 8 of 8 BBCo could deal with the Craddock account. *Use the headings below as a guide for your answer. (13)
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