DEPARTMENT OF FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT 200

(FBS 200)

EXAM: 30 NOVEMBER 2021

QUESTION PAPER

Open Rubric
 FINANCIAL MANAGEMENT 200 DEPARTMENT
EXAM/2021 OF
Marks – 13 FINANCIAL MANAGEMENT

QUESTION 1 – MULTIPLE CHOICE (13 MARKS)

LABOUR (2 MARKS)

DOLLYPOPS (“DollyPops”) manufactures lollipops and other hard sweets. A single factory worker at
DollyPops works 40 hours a week for 48 weeks in a year. Factory workers are paid R75 per work
hour and are entitled to 4 weeks of paid leave in a year. There are 52 weeks in a year.

The best estimate of the annual cost of direct labour for a single factory worker that should have been
allocated to work in progress for the year ended October 2021 is nearest to:

A) R132 000
B) R144 000
C) R156 000
D) R187 200 (2)

OVERHEADS (4 MARKS)

BLINDSIDE (PTY) LIMITED (“Blindside”) manufactures standard sets of bamboo blinds. The following
cost data was obtained for the financial year ended 31 December 2021:

The direct labour cost to produce one standard set of bamboo blinds is R130. The direct labourers are
paid R58.50 per clock hour. They clock eight hours a day but are only productive for 90% of the time.
The fixed overheads are recovered based on work hours per single standard set of bamboo blinds.
The financial manager has correctly calculated the fixed overhead recovery rate at R162 per work
hour.

The best estimate of the fixed overhead amount to be allocated to one standard set of bamboo blinds
is nearest to: 

A) R145.80
B) R162.00
C) R324.00
D) R360.00 (2)

Mr Nelson is the financial manager of BRAAIBOYS (PTY) LIMITED (“BB”). BB is a manufacturing entity
and the following cost data was obtained for the month ended 30 November 2021:

The bank statement reflected an amount of R3 131 140 in relation to the fixed manufacturing overhead
for the month. The recovery rate was R10.44 per unit and BB manufactured 250 000 units during the
month of November 2021. Mr Nelson incorrectly recorded an over-recovery of manufacturing
overheads in the fixed manufacturing overhead account for the month of November 2021. All
under/over-recoveries of manufacturing overheads impact cost of sales and are recorded in the fixed
manufacturing overhead account.

To correct Mr Nelson’s error, the required entry in the fixed manufacturing overhead account is closest
to: 

A) Debit: R521 140

B) Credit: R521 140
C) Debit: R1 042 280
D) Credit: R1 042 280 (2)

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JOINT & BY-PRODUCTS (3 MARKS)

HONEYBUNS (PTY) LIMITED (“Honeybuns”) produces four different grades of honey from a single
joint process. During the financial year ended 30 November 2021, the following applied:

Litres produced at Further processing Sales value after

Honey grade
split off point costs further processing
Grade A 750 000 litres R1 320 000 R6 000 000
Grade B 1 100 000 litres R900 000 R7 700 000
Grade C 490 500 litres R630 000 R2 943 000
Grade D 102 000 litres R470 000 R561 000
Total 2 442 500 litres R3 320 000 R17 204 000

The total cost incurred during the joint process and to be allocated to the different grades of honey
was R5 798 120.

The gross profit of Grade A honey, using the constant gross profit percentage method to allocate joint
costs, is closest to:

A) R2 199 600.00
B) R2 820 000.00
C) R3 180 000.00
D) R3 977 870.26 (2)

Which of the following statements with regard to joint and by-products is false:

A) None of the joint costs are allocated to the by-product.

B) The costs of disposal of waste or scrap products are added to the joint costs.
C) The joint cost can normally be reduced by the net realisable value of the by-products at
production, when a market for the by-product exists.
D) The net realisable value at split off point method uses the selling price at split off point to split the
joint cost between the joint products. (1)

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PROCESS COSTING (4 MARKS)

BERRYGOOD (PTY) Ltd (“BerryGood”) is a company located in Stellenbosch. They manufacture

various types of berry flavoured jams. You recently became the management accountant of
BerryGood and ascertained the following information with regard to the production of their strawberry
jam for the financial year ended 31 August 2021:

Total Raw Materials Overheads Labour

Cost for current month R22 640 100 R13 730 220 R5 510 090 R3 399 246
Cost per equivalent unit (R/kg) R150.84 R88.01 R35.32 R27.51

The equivalent units table for the financial year ended 31 August 2021 is as follows:

Total Raw Materials Overheads Labour

Opening work in progress 4 500 kgs - - 900 kgs
Started and completed 117 800 kgs 117 800 kgs 117 800 kgs 117 800 kgs
Closing work in progress 30 400 kgs 30 400 kgs 30 400 kgs 4 864 kgs
Normal loss 7 800 kgs 7 800 kgs 7 800 kgs -
Total equivalent units 156 000 kgs 156 000 kgs 123 564 kgs

All raw materials are added at the start of the process. The process is machine intensive from the
start of the process up to the 75% stage of completion. From the 75% to 100% stage of completion,
the process is labour intensive. Therefore, overheads are incurred up until the 75% stage of
completion and labour costs are incurred from the 75% to 100% stage of completion. Overhead costs
are incurred evenly throughout the first 75% of the process and labour costs are incurred evenly
throughout the last 25% of the process. The normal loss occurs at the 75% point of completion. Each
completed jar of jam contains 500 grams of jam.

The stage of completion of the closing work in progress can be best estimated to be:

A) 64%
B) 75%
C) 79%
D) 91% (2)

The cost of closing work in progress can be best estimated as:

A) R3 883 040.64
B) R4 080 368.64
C) R4 845 014.64
D) R5 059 592.64 (2)

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 DEPARTMENT OF FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT 200 (FBS 200)

EXAM: 30 NOVEMBER 2021

QUESTION 2

Marks Writing time Uploading time

Question 2 17 marks 26 minutes 15 minutes

 Show all calculations and round off all calculations and final answers to
TWO decimal places, unless otherwise stated.

 Please combine all your answer template pages relating to QUESTION 2 into a
SINGLE PDF file and make sure that you upload ONE SINGLE PDF file onto ClickUP.
QUESTION 2 (17 MARKS)

This question consists of two independent and unrelated parts.

PART A (13 MARKS)

ZEUS (PTY) LTD

ZEUS (PTY) LTD (“Zeus”) is a retail shoe company that focuses on providing fashionable and
comfortable sandals.

The inexperienced financial clerk prepared the cash budget for the month ending 30 November 2021
as follows:

Cash budget for the month ending 30 November 2021

Note
Bank balance as at 1 November 2021 (assume correct)
Inflows during November 2021:
Total revenue
Proceeds from sale of cash register
Taxation penalty
Outflows during November 2021:
Merchandise purchased on credit
Other cash expenses
Depreciation on equipment
Bank balance as at 30 November 2021
Rands(R)
215 000
1 1 250 000
2 20 000
3 20 540
4 (961 500)
5 (83 500)
(3 100)
457 440

Notes:

1. Zeus sells its sandals both on a cash and credit basis in a ratio of 70%:30%. The collection from
debtors takes place as follows:
– 5% in the month of sale (5% early settlement discount is awarded to all debtors who pay
within this term)
– 15% in the first calendar month following the month of sale
– 80% in the second calendar month following the month of sale

The following pertains to actual monthly sales:

Actual sales September 2021 R1 750 000

Actual sales October 2021 R1 350 000
Actual sales November 2021 R1 250 000

2. A contract was entered into to sell an old cash register in order for a new cash register to be
purchased. The new cash register was purchased in cash for R35 000 on 30 November 2021,
while the proceeds of R20 000 for the old cash register will only be received in December 2021.

3. The annual tax return was submitted to the South African Revenue Service (SARS) too late last
year and thus a tax penalty was payable in cash on 15 November 2021 of R20 450. If payment
was not made by this date, additional penalties and interest would have been levied.

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4. All purchases from suppliers are made on credit. 50% of the purchase price is due in the first
calendar month after the month of purchase and the remainder is due in the second calendar
month after the month of purchase. Zeus always takes advantage of these terms. Purchases
from suppliers amounted to R875 000 in September 2021 and R936 000 in October 2021.
Purchases for November 2021 amounted to R987 000.

5. Included in other cash expenses are the following:

– Water and electricity is paid within the month incurred: R24 000
– Property taxes are paid once annually, in January, but apportioned over 12 months for
purposes of overhead allocation: R 5 000
– The insurance premium is paid at the end of each month for insurance coverage for the
month to come: R13 000
– Labour cost for the month of November 2021 of R41 500. The store manager earns a salary
of R27 500 per month, while the two shop clerks earn a weekly wage of R3 500 each. A
month typically consists of 4 weeks. All labour costs are paid in cash during the month to
which the labour relates.

REQUIRED – PART A MARKS

a) Critically analyse the cash budget prepared by the financial clerk for the month
ending 30 November 2021 by identifying any concerns you may have or errors made.

Your analysis should:

 include calculations where necessary;
 provide the correct treatment and measurement of items to be included in
the cash budget; and
12
 be presented using the following layout:

# Error or concern Correct treatment

Included depreciation as a As depreciation of R3 100 is a non-cash item
cash outflow item even it should not be reflected in the cash budget.
e.g.
though depreciation is a Depreciation should be shown as R0 in the
non-cash item. cash budget.

You are NOT required to reperform the cash budget.

Communication skills – Layout and structure 1

TOTAL 13

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PART B (4 MARKS)

LAZY (PTY) LTD

LAZY (PTY) LTD (“Lazy”) manufactures luxury orthopaedic pillows. They currently have two lines of
luxurious pillows. The Egyptian line is stuffed with memory foam and has an Egyptian cotton casing.
On the other hand, the Roman line is stuffed with duck feathers and has a silk casing. Each pillow
has the company’s slogan, “Rest like Cleopatra”, stitched onto it. The following financial information
relates to the financial year ended 31 May 2021:

Egyptian Roman
Selling price per unit R1 250 ?
Variable cost per unit: R975 R1 625
Manufacturing variable costs R819 R1 462.50
Non-manufacturing variable costs R156 R162.50
Fixed overheads: R30 750 000
Manufacturing overheads R27 000 000
Non-manufacturing overheads R3 750 000

For every Roman pillow sold, three Egyptian pillows are sold.

REQUIRED – PART B MARKS

a) Assuming that Lazy needs to sell a total of 82 000 pillows to break even, calculate
the selling price per unit of a Roman pillow. 4
TOTAL 4

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 DEPARTMENT OF FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT 200 (FBS 200)

EXAM: 30 NOVEMBER 2021

QUESTION 3

Marks Writing time Uploading time

Question 3 30 marks 45 minutes 15 minutes

 Show all calculations and round off all calculations and final answers to
TWO decimal places, unless otherwise stated.

 Please combine all your answer template pages relating to QUESTION 3 into a
SINGLE PDF file and make sure that you upload ONE SINGLE PDF file onto ClickUP.
QUESTION 3 (30 MARKS)

WOODPECKER (PTY) LTD (“Woodpecker”) is a manufacturer and wholesaler of wooden furniture in

South Africa, with their product range including cupboards, tables and chairs. The company’s factory
is situated in the Eastern Cape. The company has a 28 February year-end. Woodpecker uses a
variable costing system to value its inventory.

Production and sales of old-style cupboards

For many years Woodpecker has been producing cheap old-style wooden cupboards. These
cupboards are very popular with customers seeking low-cost furniture. Sales of old-style cupboards
are not seasonal and, according to the budget, Woodpecker forecasted that 30 000 old-style
cupboards would be produced and sold each month during the year ending 28 February 2022. It was
budgeted that old-style cupboards would generate a contribution of R200 per cupboard.

The budget for the month of October 2021 included the following total sales and total costs for
old-style cupboards:

Notes Total
Sales of wooden cupboards R17 760 000
Direct raw material used:
- Raw wood (1.5kgs per cupboard) R9 000 000
- Hinges (2 units per cupboard) R600 000
Direct labour: (1.5 work hours per cupboard) R2 025 000
Variable production overhead
(allocated to production at R3 per direct labour work hour) R135 000
Fixed production overheads R400 000

Woodpecker produced and sold 28 000 old-style cupboards during the month ended
31 October 2021. The actual results for the month of October 2021, which include total sales and
total costs for old-style cupboards were as follows:

Notes Total
Sales of wooden cupboards 1 R16 240 000
Direct raw material used:
- Raw wood (1.6 kgs per cupboard) 2 R8 736 000
- Hinges (2 units) R560 000
Direct labour: (1.75 work hours per cupboard) R1 960 000
Variable production overhead
(allocated to production at R3.20 per direct labour work hour) R188 160
Fixed production overheads R360 000

The following notes provide additional information regarding the budgeted and actual results:

1. A new low-cost furniture wholesaler entered the market during September 2021. In order to retain
its existing customers, Woodpecker had a special sale on old-style cupboards for the month of
October 2021.

2. There was no opening inventory of raw materials at 1 October 2021. There was also no closing
inventory as at 31 October 2021. Raw material inventory is valued at actual cost. Work in progress
and finished goods inventory are valued at standard cost. The supplier of raw wood offered a
discount for the month of October 2021 as the quality of the wood was diminished owing to an
infestation of insects. This caused some of the wood to have defects and more wood was required
per cupboard owing to wastage. A normal loss of 6.25% occurs during production owing to the
defects.

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Production and sales of new-style cupboards

Woodpecker’s design department recently designed a new-style cupboard and five unskilled workers
have been assigned to manufacture these cupboards. All workers are productive for 36 hours each
week. There are four work weeks in each month. Production of the new-style cupboards started
recently. Each worker works independently. All five workers manufacture the new-style cupboards
simultaneously and at the same pace. The time taken by each worker to make their first new-style
cupboard was not recorded. However, the average time per unit for cumulative production of eight
cupboards per worker was 6.86 hours. Based on previous experience, the production manager
believes that the learning curve rate is 70% and that the learning curve effect will end after 40
cupboards have been manufactured by each worker.

Woodpecker planned ahead to introduce the new-style cupboards and the budget for the year ending
28 February 2022 catered for this. The budgeted direct labour rate for the production of the new-style
cupboards was R45 per work hour. Woodpecker’s management accountant recently reviewed the
budget and realised that the learning curve effect was not taken into account in the budget even
though the learning takes place under normal efficient operating conditions. The management
accountant is currently updating the standards set for the direct labour rate per hour and the direct
labour hours per unit. The budget will also be updated on this basis.

Production and sales of tables and chairs

Woodpecker produces tables and chairs from different combinations of the same resources. Details
of the resources used are as follows:

Tables Chairs
Wood (R500 per kg) 3kg 2kg
Varnish (R200 per litre) 1 litre 0.5 litres
Nails (R1 per nail) 20 per table 30 per chair
Direct labour (R100 per work hour) 4 hours 5 hours
Machine cutting of wood (R80 per hour) 0.5 hours 0.25 hours

There are limited resources available for the production of tables and chairs for the month ended
31 December 2021 owing to the holiday period, which results in supply issues for wood and shortages
of skilled workers. Only skilled workers manufacture tables and chairs. The resources available are
as follows:

Wood 6 000 kgs

Direct labour (skilled workers) 9 600 hours

Varnish, nails and machine cutting hours are not limited resources.

Tables and chairs are sold to various retailers at a price of R3 096 and R2 500 per unit, respectively.
Fixed costs are R50 000 per month. Although the demand for tables is unlimited, the maximum
demand for chairs is 10 000 chairs per month. All tables and chairs produced during a month are sold
in the following month. Woodpecker wants to maximise profits by selling the optimal mix of tables and
chairs given the limited resources available during the month ended 31 December 2021.

Page 2 of 3
REQUIRED MARKS
a) Calculate the following variances for Woodpecker (Pty) Ltd’s old-style cupboards
for the month ended 31 October 2021:
i) Sales volume variance
ii) Sales price variance
iii) Direct material price variance for raw wood 8
b) Calculate the total number of complete new-style cupboards that Woodpecker (Pty)
Ltd can manufacture in the first two months of production. 7

Show all calculations. Round all calculations to four decimal places.

c) Discuss whether Woodpecker (Pty) Ltd should take the learning curve effect into
account when calculating the labour rate and labour efficiency variances. No
calculations are required. 4

Communication skills – Logical argument 1

d) Justify whether linear programming or contribution per limiting factor should be
used to decide on the optimal mix of tables and chairs to be manufactured by
Woodpecker (Pty) Ltd to maximise profits for the month ended 31 December 2021. 4
e) Assume that:
 the optimal mix of tables and chairs occurs on a graph at the point where the
constraints for wood and direct labour intersect;
 the production manager has been able to persuade the skilled workers to
work overtime during December 2021; and
 the total contribution from the optimal production mix of tables and chairs,
without any overtime, was R2 026 971.43 for the month of December 2021.

Calculate the maximum rate per hour that Woodpecker should pay the skilled
workers, who manufacture the tables and chairs, for one hour of overtime for the
month ended 31 December 2021.

Do not use the dual method in your answer. 6

TOTAL 30

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 DEPARTMENT OF FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT 200 (FBS 200)

EXAM: 30 NOVEMBER 2021

QUESTION 4

Marks Writing time Uploading time

Question 4 30 marks 45 minutes 15 minutes

 Show all calculations and round off all calculations and final answers to
TWO decimal places, unless otherwise stated.

 Please combine all your answer template pages relating to QUESTION 4 into a
SINGLE PDF file and make sure that you upload ONE SINGLE PDF file onto ClickUP.
QUESTION 4 (30 MARKS)

B-FIT WATCHES (PTY) LTD (hereafter “B-Fit”) is a manufacturer of sports and fitness watches,
located in Cape Town. The company’s management recently realised that B-Fit’s competitors have
been aggressively implementing new technologies, which has resulted in a decrease in sales of B-
Fit’s GPS100 watch model. B-Fit has a financial year end of 31 December.

The marketing manager of B-Fit asked a market research company to evaluate the market through a
customer survey. The customer responses indicated that consumers want the newer technology.
Therefore, consumers expect a reduced price for the older technology used in the GPS100 or,
alternatively, the introduction of an improved model with updated technology.

Based on the feedback from the market research, B-Fit’s marketing manager consulted with the
company’s head of research and development, who indicated that B-Fit’s watch technology could be
upgraded to a level superior to that of the competitor, but that this would require a new machine to
produce the watch (named the GPS200). B-Fit must thus decide whether they should replace the
existing old machine and GPS100 watch with the new machine and GPS200 watch. Should the
company decide to go ahead with the project, B-Fit will commence with the GPS200 project and
produce only GPS200 watches from 1 January 2022.

B-Fit’s head of research and development asked a Chinese machine manufacturer to provide a
quotation for the new production machine. The quotation was received and indicated that the machine
would cost R10 000 000 to acquire, deliver and install. The price was quoted in US dollars and
converted to Rands, with the supplier stipulating that it would not accept payment in Rands. The
exchange rate at the date of purchase (1 January 2022) is expected to be R16: $1. This exchange
rate was used to convert the cost price of the machine from US dollars to Rands.

The new machine can produce 10 000 GPS200 watches a year. The market research company was
once again contacted and asked to determine the market interest in the proposed GPS200 watch,
which would use improved technology. The market researchers determined that the market interest
was good and that there was a 70% chance that the company could sell 8 000 GPS200 watches a
year. However, due to the rising unemployment and reduction in consumer spending in South Africa,
there is a 30% chance that B-Fit will only sell 5 000 GPS200 watches per year. B-Fit paid the market
research company R100 000 in the 2021 financial year, for all research conducted. The company
anticipates that the new watch technology will last for approximately four years with minor tweaks
before the product becomes obsolete. At this stage, the expectation is that the new production
machine will be sold for R6 000 000 to a competitor at the end of year 4.

The company has an existing watch manufacturing machine for the GPS100; this machine was
purchased three years ago and had a useful life of five years. Should the decision be made to go
ahead with the GPS200 project, the old machine can be sold for R1 500 000 and will be replaced
immediately by the new production machine. The old machine was originally purchased for
R5 000 000 and has a tax value of R2 000 000 on 1 January 2022. Alternatively, the old machine can
be sold in two years’ time at the end of its useful life for R200 000. If the company does not sell the
old machine immediately, it could still produce and sell a limited number of GPS100 watches, which
would earn the company a profit before tax of R150 000 in each of the remaining two years of the
machine’s useful life.

Page 1 of 3 
The following revenue and expenses relate to the manufacturing and sales of the new
GPS200 watch model:

Notes Rands
Selling price R4 000 per watch
Variable costs (raw material and labour) 1 R1 000 per watch
Fixed production costs 2 R10 000 000 per annum
Advertising costs R2 000 000 per annum
Allocated head office costs 3 R1 000 000 per annum
Inventory of existing GPS100 straps 1 1 000 straps

Notes

1. R200 of the estimated variable cost per watch relates to the GPS200 watch straps. The company
currently has 1 000 straps in stock from the GPS100 model, which can be adapted for the GPS200
model at a cost of R50 each. The original cost of these straps was R100 each. If not used for this
purpose, B-Fit can sell the existing GPS100 model straps to a competitor on 1 January 2022 for
R160 per strap.

2. The fixed costs relate directly to the new production machine and will not be incurred if the
GPS200 model is not introduced.

3. The allocated head office cost is an allocation of the accounting department’s costs for 10% of
their time. The accounting department currently has spare capacity for additional work.

Additional information

 The expected net investment in working capital needed at the beginning of the project is R50 000.
The balance of working capital at the end of year 4 is expected to be R0, as all working capital
charges are expected to be recovered at the end of the project. This working capital is not subject
to tax. The company will require the following working capital to fund the production process, the
investment of which will be required at the beginning of each year

Year 1 2 3 4
Working capital R50 000 R60 000 R75 000 R80 000

 The financial director of B-Fit indicated that the company has sufficient cash resources available
for the project and that B-Fit’s after-tax weighted average cost of capital (WACC) is
13% per annum.

 The South African Revenue Service (SARS) permits wear and tear allowances to be claimed for
both the old machine (20% per year) and new machine (40%:20%:20%:20%) in accordance with
section 12C of the Income Tax Act

 You may assume a corporate tax rate of 28% for the duration of the project. You should ignore
the tax effects relating to working capital, value added taxation (VAT) and capital gains tax (CGT).
Tax will be paid at the end of the year in which it is incurred.

 All expected cash flows for a given year are received or paid at the end of that year except where
specifically stated otherwise.

 The company has sufficient taxable income from other projects to absorb any assessed losses
that may arise.

Page 2 of 3 
REQUIRED MARKS
a) Determine, from a purely financial perspective, whether B-Fit should replace the
existing old machine and GPS100 watch with the new machine and GPS200 watch.

 Your analysis should be performed for the duration of the project.

 Indicate and provide reasons for any amounts that you consider irrelevant and
have chosen not to include in your analysis. 26
b) Briefly discuss other factors, specific to the scenario, that B-Fit should consider prior
to making the final decision in relation to the machine replacement. 4
TOTAL 30

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