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ASSIGNMENT 2ND SEMESTER : MANAGEMENT ACCOUNTING (MA) STUDY UNITS COVERED
: STUDY UNITS 1 - 3
CHAPTERS COVERED
: CHAPTERS 11-14
DUE DATE
: 3:00 p.m. 20 AUGUST 2013
TOTAL MARKS
: 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 Additional Tuition 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 (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 20 August 2013. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 20 August 2013 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.
10. Results will be available on the IMM GSM website: www.immgsm.ac.za, on 4 October 2013.
Assignment 2nd Semester 2013
© IMM Graduate School of Marketing MA
Page 2 of 6
QUESTION 1 – SHORT QUESTIONS 1.1
[28]
Various Users of financial information need the information to make certain decisions. The table below contains internal and external users of financial data as well as their various uses of the data. However, the ‘users’ and ‘use’ columns are mixed up. You are required to write the correct number from the ‘users’ column with the correct letter from the ‘use’ column. E.g. if you feel ‘Owners’ is correctly matched with point ‘a’, then your answer would be 1.1.1 – a. Follow this process for all eight of the users listed.
Users 1.1.1 Owners 1.1.2 Employees 1.1.3 Customers 1.1.4 Competitors 1.1.5Lenders 1.1.6 Government
1.1.7 Suppliers 1.1.8 Investment analysts
Use a. Determine if the business can repay loans and interest. b. Competitor intelligence, to maintain competitive edge. c. Determine if business can provide products over a long period of time. d. Determine if business can pay for goods purchased on credit e. Determine if the employer is able to provide stable employment and remuneration. f. Determine if a business would be a good investment and to assess risk and return of an investment in business. g. Determine how much tax and levies should be paid. h. Determine profitability and financial viability. (8)
1.2
Name any three (3) production overheads which you would expect to find in a manufacturing organisation. (3)
1.3
In business, owners and managers will often have to make ‘quick’ decisions under special ‘once off’ situations. Generally, these decisions happen within one year/ over the short term. Identify six (6) quick/short-term decisions which the logic of relevant costs can be applied to. (6 x ½) (3)
1.4
The manager of ‘Maple Furn Manufacturers’ has identified various items that are preventing his organisation from extending its sales, production and profits. A management accountant friend has told him that those items would be regarded as limiting factors. Identify any three (3) potential limiting factors and for each factor briefly discuss how they would arise and/or how you would manage or recommend reducing their effects on the business. (6)
Assignment 2nd Semester 2013
© IMM Graduate School of Marketing MA
Page 3 of 6
1.5
You are provided with the following costs which might be incurred in a service, trading or manufacturing entity. Indicate whether the cost involved would be variable, fixed or semi-variable (mixed). (Mark your chosen cost classification by marking an ‘X’ under the relevant column.) Cost Behavior 1.5.1 1.5.2 1.5.3 1.5.4 1.5.5
1.5.6 1.5.7 1.5.8 1.5.9
1.5.10 1.5.11 1.5.12 1.5.13
1.5.14 1.5.15 1.5.16
Cost Variable Leather used to manufacture handbags. Cleaning materials used in a factory. Wages of assembly line workers paid per hour. Salary of the factory supervisor. Depreciation on factory plant and equipment.(straight line depreciation). Electrical costs of running machinery. Rental of the factory warehouse. Rates and taxes on factory building. Manufacturing equipment leased at a flat rate per month plus an additional cost based on the number of hours it is operated each month. Telephone costs (Including line rental). X-Ray film used in a medical centre. Buns used to make burgers at a fast food outlet. Shipping costs of a manufacturer where no monthly contract exists i.e. the manufacturer is charged per product shipped. Advertising on a billboard where a monthly contract exists. Commission paid to sales personnel. Insurance on the office building
Fixed
Mixed
(16 x ½) (8)
Assignment 2nd Semester 2013
© IMM Graduate School of Marketing MA
Page 4 of 6
QUESTION 2 – COST ANALYSIS
[27]
Builders Ltd is an organisation which manufactures building equipment for the building industry in and around the Sandton area in Johannesburg. Builders Ltd has the following production overhead budget: Overhead Cost Site foreman salary Indirect labour (workers) Miscellaneous machinery costs Electricity Insurance Rent Depreciation on machinery
R
250 000 400 000 1 500 000 585 000 50 000 120 000 150 000 R3 055 000 The company operates five cost centers: Bricks, Cementing, Window Frames, Doors Frames, and Canteen. The following details have been identified for each cost center.
Bricks 2
Cementing
Floor space (m )
4 500 m
2
4 500 m
Kilowatt hours Capital cost of machines (R 000)
250 000
200 000
5 500 000
Indirect labourers Misc. machinery costs (allocated) Site foreman (allocated)
2
Window Frames
Canteen 1 000 m
150 000
100 000
50 000
750 000
5 500 000
2 500 000
2 500 000
100 000
25
25
10
10
5
16 100 000 75
R500 000
R500 000
R300 000
R150 000
R50 000
R 1 500 000
R75 000
R50 000
R50 000
R50 000
R25 000
R 250 000
1 000 m
2
Total 12 000 m2
2
1 000 m
2
Door Frames
Additional information:
Use miscellaneous machinery costs to apportion depreciation. Use the capital cost of machines to apportion insurance. Use floor space to apportion rent. Use kilowatt hours to apportion electricity. Use number of indirect labourers, to apportion indirect labour.
Required:
Allocate and apportion the overheads to the five cost centers using the information provided. (Suggested headings to help you lay out your answer have been provided below. Round all your figures to the nearest WHOLE RAND.) Overhead cost Site Foreman Salary
Total
Bricks
Cementing
Window Frames
Door Frames
Canteen
R250 000
R?
R?
R?
R?
R?
….
…
…
…
…
…
…
Assignment 2nd Semester 2013
© IMM Graduate School of Marketing MA
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QUESTION 3 – ABSORBTION VS VARIABLE COSTING
[20]
Energize Ltd is a manufacturing company that has started producing a specialist device and has the following data for the first month of operation, January 2013: Unit information: Opening inventory Sales Production Closing Inventory Cost information: Manufacturing costs: Direct materials Direct labour Variable manufacturing overhead expenses Fixed manufacturing overhead expenses Selling and administrative costs: Variable selling and administrative expenses Fixed selling and administrative expenses Each device is sold at R120. production units.
units 0 35 000 40 000 5 000 Rands R30 per unit R14 per unit R4 per unit R1 280 000 R4 per unit R1 120 000
Fixed overheads are allocated on the basis of
Management is anxious to see how the new device is performing in terms of profitability. Required: 3.1
Calculate the unit product cost for one device (unit) assuming the: 3.1.1 Absorption costing system is used. 3.1.2 Variable costing.system is used.
3.2
(6) (4)
Prepare an income statement for Energize Ltd for January 2013 under the variable costing system. (10)
Assignment 2nd Semester 2013
© IMM Graduate School of Marketing MA
Page 6 of 6
QUESTION 4 - COST – VOLUME – PROFIT ANALYSIS
[25]
Easy-Answer Ltd manufactures and sells a telephone answering machine. The company’s income statement for the most recent year is given below:
Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net income
Total (R) 1 200 000 (900 000) 300 000 (240 000) 60 000
Per unit (R) 60 45 15
Percentage 100 ? ?
Management is anxious to improve the company’s profit performance and has asked for several items of information. Required:
4.1 Calculate the company’s contribution margin ratio (as a percentage).
(3)
4.2 Use the breakeven formula to calculate the company’s breakeven point in units and in Rands. (6) 4.3 Calculate the company’s margin of safety as a percentage.
(4)
4.4 Assume that next year management wants the company to earn a minimum profit of R90 000. How many units will have to be sold to meet this target profit figure? (4) 4.5 Assume that sales increases by 4 000 units next year. If cost relationships remain unchanged and the selling price is constant, what would the company’s new net income be? (Draft a brief marginal costing statement to support your answer.) (8) ASSIGNMENT TOTAL: 100
Assignment 2nd Semester 2013
© IMM Graduate School of Marketing MA