DEPARTMENT OF FINANCIAL MANAGEMENT

MANAGEMENT ACCOUNTING 410

(BSR 410)

SEMESTER TEST 1: 31 MARCH 2023

Marks: 50 Time: 90 minutes

Internal examiner: Ms A Maree
External examiner: Ms E Kirsten

Please note:

 This test paper consists of a front page plus an additional five (5) pages.
 There are four (4) questions counting 50 marks in total.
 Answer all four questions in the answer book provided.
 You may keep this question paper after the test.
BSR410 Semester Test 1 - 2023

QUESTION 1 (7 marks)

Blue Manufacturing Company opened a new factory on 1 February 2023. The company uses
job-order costing and applies manufacturing overhead cost based on the number of direct
labour hours worked.

The information below is available for February 2023:

Raw Materials purchased R550 000

Direct labour – actual hours worked 2 500 hours

Direct labour – estimated hours worked 2 600 hours

Actual labour rate paid to direct labourers R50 per hour

Manufacturing overhead - actual R860 000

Manufacturing overhead - estimated R852 800

Direct materials inventory on 28 February R45 000

Work-in-process inventory on 28 February Note 1

Note 1
Further information with regards to Work-in-process inventory on 28 February 2023:
Direct materials R15 500
Direct labour hours 60 hours

REQUIRED:

Prepare a schedule of cost of goods manufactured for Blue Manufacturing Company

for February 2023. (7)

1

QUESTION 2 (15 marks)

Green Construct does projects for clients based on the client’s specifications. They started
doing business in January 2023. The company uses a job-order costing system. The
predetermined overhead rate was determined at the beginning of 2023 and will be used
throughout the year. Manufacturing overhead is applied to jobs on the basis of direct labour
cost. During January and February 2023 only three jobs – Job G01, 102 and 103 – were
worked on.

Information from the Job cost sheets on the three jobs were as follows:

Job cost sheet

Job G01 Job G02 Job G03
Job start date 9 January 16 January 6 February
January costs: R R R
Direct materials 27 250 31 500 0
Direct labour 23 000 17 500 0
Manufacturing overhead 28 750 21 875 0

February costs: R R R
Direct materials 0 24 100 41 200
Direct labour 31 000 37 500 20 100
Manufacturing overhead ? ? ?

The following additional information is available:

1) Actual manufacturing overhead costs for February 2023 were R73 400. This excludes
indirect labour of R35 100 and indirect material costs of R11 200.
2) Job G01 was completed on 24 February and the client was invoiced on 27 February at
cost plus an 80% markup.
3) Job G02 and G03 were incomplete on 28 February.

REQUIRED:

a. Calculate the predetermined overhead rate (POHR) that the company uses to assign
overhead costs to jobs. (1.5)

b. Prepare the following journal entry for February 2023:

Record the issue of materials into production (In total, not per job). Both direct and
indirect materials are allocated to the Raw materials account. (3)

c. Prepare the following T-accounts for February 2023 and close them off at the end of
the month.
I. Work-in-process: Job G01 (3.5)
II. Work-in-process: Job G03 (3)
III. Manufacturing overhead. Clearly indicate the amount of overhead under or over
applied. (4)

2

QUESTION 3 (15 marks)

Orange Company produces f r uit j ui ce using a single production department. Production

begins with the blending of various fruit plus other direct materials that are all added at
the beginning of the process. Conversion costs are added evenly throughout the process.
All losses are detected at the quality inspection point at the beginning of the process
immediately after direct materials have been added. Normal losses are calculated as 5%
of current input.

The company has always used the weighted average (WA) method to determine
equivalent units of production and unit costs. The production manager is now considering
changing to the First-in-first-out (FIFO) method.

The following data relates to actual production during March:

Work-in-process (WIP)
units R units R
1 March
Opening
balance 70 000 546 500 Units transferred out 225 000 A.
-Materials
(100% added) 315 500 Normal losses 12 500 B.
-Conversion
(70% added) 231 000 Abnormal losses ? C.

Units started ? 1 531 200

31 March
-Materials 905 000 Closing balance 76 200 D.
Materials 100% added;
-Conversion 626 200 Conversion 80% added
? 2 077 700 ? ?

REQUIRED:

a. Assume that the company decides to switch over to the FIFO method of inventory
evaluation. For March: Prepare the credit side of the Work-in-process T-account
and the supporting schedule of equivalent units to calculate the units as well as the
value of the following:
A. Units transferred to finished goods
B. Normal loss
C. Abnormal loss
D. Units in closing balance (12)

b. Assume that the company decided to keep using the WA method. Calculate the cost
per Equivalent Unit for conversion costs for March. (2)

c. Provide management with one reason why they should consider changing from the
WA method to the FIFO method. (1)

Show all workings and use four decimals for unit costs.
Round Rand amounts to full Rands.

3

QUESTION 4 (13 marks)

The cost accountant of Yellow Company, a merchandising company, has provided you with
the following information:

Cost Additional information

Cost of goods sold R55 per unit sold
Sales commissions 15% of sales
Advertising expense R320 000 per month
Advertising expense has been identified as a mixed cost.
Variable advertising cost amounts to R9.50 per unit sold.
Administrative salaries The company employs 5 full time administrative personnel
who each earn an average annual salary of R324 000.
Delivery expense Note 1

Note 1
The cost accountant has identified delivery expense as a mixed cost. A table has been
prepared for the delivery expense and sales in units over the last months, as follows:

Delivery
Month Units sold
expense
R
January 9 000 30 400
February 11 000 31 200
March 14 000 38 100
April 17 000 42 000
May 15 000 37 200
June 12 000 35 000
July 13 500 35 800

Required:

a. Estimate the cost formula for delivery expense using the high-low method.
(round your answer to 2 decimal points) (2.5)

b. Assume that the company decides to use the scattergraph method to estimate the
delivery expense and that the cost accountant prepared the following graph:
(see next page)

4

 DELIVERY EXPENSE
46 000
44 000 17 000; 42 000
42 000
40 000 14 000; 38 100
38 000 15 000; 37 200
36 000 12 000; 35 000
34 000 13 500; 35 800
32 000 9 000; 30 400
30 000 11 000; 31 200
28 000
TOTAL COST

26 000
24 000
22 000
20 000
18 000
16 000
14 000
12 000
10 000
8 000
6 000
4 000
2 000
0
0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000
UNITS SOLD

Determine the cost formula using the scattergraph method.

(round your answer to 2 decimal points) (2)

c. Prepare an income statement (statement of profit and loss) for Yellow Company for
August, using the contribution format. (8.5)
 Assume that the company plans to sell 16 500 units during August at a selling
price of R105 per unit.
 Assume that the high-low method as calculated in question a) above, was used to
estimate the cost formula for delivery expense.

END OF PAPER