TEST 2

MODULE DESCRIPTION : MANAGEMENT ACCOUNTING 3A

MODULE CODE : RGKV301

FACULTY : BUSINESS AND ECONOMIC SCIENCES

QUALIFICATION : BACHELOR OF COMMERCE

DATE : 12 MAY 2023

DURATION (IN MINUTES) : 90 MINUTES

TOTAL MARKS : 50 MARKS

PAGES : 7 (INCLUDING COVER PAGE)

EXAMINERS : MR L JACOBUS
MS K SEPTEMBER
MS M BEZUIDENHOUT

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 TWO QUESTIONS

QUESTION MARKS MINUTES
Question 1 20 36
Question 2 15 27
Question 3 15 27
50 90
 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2023

QUESTION 1 (20 MARKS: 36 MINUTES)

Ignore VAT.

TYRES4LIFE (Pty) (“T4L”) Ltd is a small-medium sized company based in Gqeberha,

that specialises in refurbishing old tires into upscale furniture. They specialise in luxury
chairs that are made of tyres. Due to the popularity in South Africa surrounding their
furniture T4L has been able to sell their furniture to multiple museums in South Africa
as display pieces of modern South African art. This opportunity allowed T4L to venture
into the art industry and has raised interest from foreign countries. T4L commenced
operations, 13 January 2018.

The covid 19 pandemic led to a decline in sales due to the South African government
instilling the lock down restrictions. Electricity shortages have led to the company
losing operating business hours because the company does not have generators.
Despite the rise in the country’s instability the tourism industry has reported a rise in
tourists in 2022.

An American company, Luxury (Pty) Ltd, has approached T4L for an order of 200
chairs. This will result in the need to purchase an additional machine at a cost of
R70 000, to add to their production process. A local supplier has been identified by the
T4L. The machine will be used to cut, shape, and make a different weave pattern to
the tyre material. T4L has no intention of including this variation of chairs in its standard
product range. As it has not yet determined the likely demand in its primary market-
being the South African market.

It has been determined that the direct labour cost and variable overhead
manufacturing costs will remain the same for the special order. Luxury has requested
their chairs have a colour and design that T4L does not usually produce. The shade
of paint required will require T4L to find a new supplier as the colour required needs
the raw paint shades to be mixed in the exact proportions through a vigorous process
to attain the perfect shade required.

Luxury has offered an initial price of R545 000 for the special order for 200 chairs.
They have requested that the chairs be delivered to them. The first 100 chairs will be
delivered on 22 April 2023 and the next 100 chairs will be delivered on 29 May 2023.
The delivery costs are expected to be $1650 in April and increased by 10% in May.
Customs and shipment costs are included in the delivery costs. The agreement
stipulates Luxury will pay for the first delivery/shipment and T4L is to pay the second
delivery/shipment costs. x

Below is an extract of a budget of T4L (chairs production line) for the year ended 31
March 2023:

1. Each chair that is made needs a semi-skilled labourer to work for 60 minutes to
connect the weaved material onto the tire seat and inspect the chair, and skilled

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 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2023

labourers take 2.5 hours to make the wooden outer part this includes ensuring
sanding of the wood components is appropriate and connecting the wooden
parts together). It takes the unskilled labourers 35 minutes per coat to paint the
chair. Each finished chair requires two coats of paint.

The semi-skilled labourers are allowed to work a total of 1920 hours a year.
Each labourer is allowed overtime of 200 hours a year at a rate of 1.5 times.
There are 7 semi-skilled labourers, and they are each paid R91.08 per hour.
Skilled labourers are also allowed to work a total of 1920 hours a year. There
is no overtime available. There are 5 skilled labourers, and they each are paid
R17 500 every month.

The unskilled labourers are paid an hourly rate of R25.42. There are no
maximum hours of work set for labourers and T4L can hire as and when
needed.

Schedule of hours for the existing demand (excluding the special order):

Normal hours Overtime hours Used hours

available available
Skilled 9 600 0 9 010
Semi-skilled 13 440 1 400 14 800

2. The new paint will dry the same way as the T4L usual paint coatings.

3. T4L sells its good at the same standard price to all customers (retailers,
boutiques, and individuals)

4. The entity has fixed costs budgeted at R 560 000, of which R45 000 is specific
to the special order.

Additional information:

• All employees are only allowed to work for 48 weeks during a year. There are
5 working days every week.
• The contribution margin is R975 per chair.
• The exchange rate:

April 1 USD = 18.1426 ZAR

May 1 USD = 18.5250 ZAR

3
 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2023

Required: Marks
1. Calculate the relevant cost of the special order received by 14
TYRES4LIFE.

Show all your workings and provide explanations for your

inclusion/exclusion of amounts.

2. What other considerations should TYRES4LIFE consider before 5

accepting the special order.
Considerations must be in line with the scenario provided.

Communication skills – Format, layout and logical argument 1

4
 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2023

QUESTION 2 (15 MARKS: 27 MINUTES)

Blueberry Hill (Pty) Ltd (Blueberry Hill) is a pioneer in the clothing manufacturing
industry in South Africa. Blueberry Hill specialises in the production of down (puffer)
jackets.
Blueberry Hill’s main customers are large retail chains as well as a number of small
retailers in South Africa. Blueberry Hill’s main competition are down jacket producers
in Europe. Despite the fact that Blueberry Hill has a cost advantage gained from lower
transport and insurance costs, the perception amongst the South African public is that
the imported down jackets from Europe are of a higher quality.
Blueberry Hill produces two types of down jackets. The first is the original down jacket.
The original down jacket is made with nylon which is then stuffed with down filler. The
second type of down jacket that Blueberry Hill produces is a waterproof down jacket.
The waterproof down jacket is made out of waterproof nylon and is then stuffed with
down filler.
An extract of the financial managers variance report for the year ended 31 December
2022 is provided below:
Budget Actual Variance
Sales (units)
- Original down jacket 70 000 50 000 (20 000)
- Waterproof down jacket 45 000 60 000 15 000
Sales
- Original down jacket R38 500 000 R30 000 000 (R8 500 000)
- Waterproof down jacket R27 900 000 R42 000 000 R14 100 000

Additional information:
• Blueberry Hill operates a standard absorption costing system.
• The standard profit margin has been correctly calculated at R380 per original
down jacket and R460 per waterproof down jacket.

Required: Marks
a) Briefly discuss the limitations of the variances provided in the financial 3
managers report and a possible solution to these limitations. No
calculations are required.

b) Calculate the correct sales variances in as much detail as possible. 12

Note: Round all answers to the nearest R1.

5
 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2023

QUESTION 3 (15 MARKS: 27 MINUTES)

The Ink Company (Pty) Ltd (The InkCo) specialises in the production of high-quality
ink which it supplies to various printing companies throughout the country.

Ink production makes use of two types of ingredients, namely the pigment powder,
which is the colour, and the vehicle, which is the carrier of the colour and has a varnish
or honey-like texture. The pigment powder comprises 25% of the ingredients and the
vehicle the remaining 75%.

The vehicle (which is 75% of the ingredients) is poured into a pot and placed on a
mixer. The vehicle is then heated until it reaches the consistency of a liquid, which is
thinner than what it would be at room temperature. It takes 10 minutes for the vehicle
to reach this consistency. Once this consistency is reached, the pigment powder (the
remaining 25% of the ingredients) is added and mixed with the vehicle. In other words,
the remaining 25% of the ingredients is added at the 33⅓% stage of completion. It
takes a further 15 minutes to mix, incorporate and grind the pigment powder with the
vehicle. Thereafter, at the 25-minute mark, the ink is inspected to ensure that each
pigment particle is reduced to its smallest possible size to ensure a smooth, even,
shiny, and bright print, all the time. A normal loss of 5% is expected. The entire
process takes 30 minutes to complete.

The following information relates to the last quarter of the financial year:

Opening work-in-progress (7.5 minutes complete) 4 200 litres

• Ingredients (total cost is R250) R787 500
• Conversion costs (total cost is R150) R157 500

Units introduced during the quarter 45 000 litres

Current period costs

• Ingredients R11 515 625
• Conversion costs R6 834 375

Closing work-in-progress (22.5 minutes complete) 3 500 litres

Completed production 43 500 litres

Additional information:

• The InkCo uses the FIFO method for inventory valuation.

• The normal loss identified relates to units started during the current period.
• Any abnormal loss identified relates to units started during the current period.

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 NELSON MANDELA UNIVERSITY
MANAGEMENT ACCOUNTING 3 – RGKV301
MAY 2023

Required: Marks
a) Calculate the cost per equivalent units of production for the last quarter 12
of the financial year, using the equivalent units table.
b) Calculate the value of the normal loss and closing work-in-progress for 3
the last quarter of the financial year.