EMAC 2624 Study Guide 2023 BB

EMAC2624
INTRODUCTION TO
MANAGEMENT
ACCOUNTING
NQF level 6
[16 Credits]
School of Accountancy
Compiled by
Marné van Niekerk
2023
TABLE OF CONTENTS
1. Welcoming...................................................................................................................... 7
2. Contact Sessions........................................................................................................... 9
3. Study Material .............................................................................................................. 10
4. Assessment.................................................................................................................. 10
4.1. Assessment Breakdown ............................................................................................ 13
4.2. Calculation of the Final Mark ..................................................................................... 13
5. Prerequisites ................................................................................................................ 15
6. Updating of Module Information and Resources ...................................................... 15
7. School of Accountancy Teaching Philosophy and Code of Ethics ........................ 16
8. Module Outcomes ........................................................................................................ 18
9. Learning Units (Module Journey) ............................................................................... 19
10. Learning Unit 1: The Context of Management Accounting...................................... 21
10.1. Unit Overview ............................................................................................................ 21
10.2. Unit-specific Learning Outcomes ........................................................................... 23
10.3. Unit-specific Study Material ..................................................................................... 23
10.3.1. Preparation Material .............................................................................................. 23
10.3.2. Content Material ..................................................................................................... 23
10.3.3. Lecturer Guidance ................................................................................................. 24
10.4. Learning and Assessment Opportunities .............................................................. 24
10.5. Questions to consider in this unit ........................................................................... 24
10.6. Homework ................................................................................................................. 25
11. Learning Unit 2: Cost Classification, Behaviour and Estimation ............................ 29
11.1. Unit Overview ............................................................................................................ 29
11.6. Homework ................................................................................................................. 33
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12. Learning Unit 3: Material, Labour & Overheads ....................................................... 42
12.1. Unit Overview ............................................................................................................ 42
12.6. Homework ................................................................................................................. 46
13. Learning Unit 4: Direct & Absorption Costing .......................................................... 59
13.1. Unit Overview ............................................................................................................ 59
13.6. Homework ................................................................................................................. 63
14. Learning Unit 5: Cost-Volume-Profit (CVP) Analysis ............................................... 72
14.1. Unit Overview ............................................................................................................ 72
14.6. Homework ................................................................................................................. 76
15. Learning Unit 6: Budgeting ............................................... Error! Bookmark not defined.
15.1. Unit Overview .............................................................. Error! Bookmark not defined.
15.2. Unit-specific Learning Outcomes ............................. Error! Bookmark not defined.
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15.3. Unit-specific Study Material ....................................... Error! Bookmark not defined.
15.3.1. Preparation Material ................................................ Error! Bookmark not defined.
15.3.2. Content Material ....................................................... Error! Bookmark not defined.
15.3.3. Lecturer Guidance ................................................... Error! Bookmark not defined.
15.4. Learning and Assessment Opportunities ................ Error! Bookmark not defined.
15.5. Questions to consider in this unit ............................. Error! Bookmark not defined.
15.6. Homework ................................................................... Error! Bookmark not defined.
17. Learning Unit 7: Process Costing .................................... Error! Bookmark not defined.
18. Learning Unit 8: Job Costing ............................................ Error! Bookmark not defined.
Table 1: Icon Library ............................................................................................................... 5

Figure 1: Module Journey Map Template ............................................................................. 19
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Table 1: Icon Library
Icon Description
Welcoming message and lecturer information
Action words, terms and concepts that need to be understood
Prerequisites of the module
Face-to-face contact sessions
Activities to be completed individually (preparation). You may still ask for

feedback from your tutor or lecturer when you encounter aspects that you
have difficulty with
Unit-specific study material for the module
Resources to be consulted (such as the textbook, additional reading

material, etc.)
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The roadmap that contextualises (puts into perspective) the different
pieces of information in the module
An indication of an important reminder/caution from your lecturer
Assessment questions and opportunities
Assessment criteria for the module
A learning unit
Learning unit overview for a specific unit
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1. WELCOMING
Dear student,
Welcome to EMAC 2624, Introduction to Management Accounting! Mrs Lemlem Amhatsion (BFN
Campus) and Marné Van Niekerk (QwaQwa Campus) will be responsible for teaching this
module. Here is all the information that you will need to contact us, as well as other relevant staff
in the School of Accountancy:
CONTACT DETAILS OF LECTURERS
LECTURER
Lecturer: Lemlem Amhatsion
Office number: School of Accountancy – Bloemfontein Campus
Email address: AmhatsionLG@ufs.ac.za
Phone number: 051 401 2550
Consulting hours: Available on BlackBoard
Please note that consultations the day before the test are strictly limited to pre-arranged
LECTURER
Lecturer: Marné Van Niekerk
Office number: School of Accountancy – QwaQwa Campus
Email address: VanNiekerkMM@ufs.ac.za
Consulting hours: Available on BlackBoard
appointments (24-hour notice).
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CONTACT DETAILS OF SUPPORTING STAFF
Name: Leandra Rykaart
Office number: 141 Stef Coetzee Building
Email address: allenl@ufs.ac.za
Phone number: (051) 401 2462
Academic Trainee
Name: Sipho Nguni
Office number: School of Accountancy – Bloemfontein Campus
Email address: NguniSG@ufs.ac.za
Consulting hours: Face-to-face and blackboard
The School of Accountancy has a reception counter to help visitors with general inquiries. A
student wishing to speak to a lecturer must report at reception or, if the lecturer is not available,
enquiries can be directed to reception to find out when they will be available or leave a message.
Contact Reception at 051 401 2333.
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2. CONTACT SESSIONS
Please consult the UFS official class timetable for the dates, venues and times scheduled for
contact sessions. The class timetable will also be made available on Blackboard.
COMMUNICATION & APPOINTMENTS
Announcements will be made under “Announcements” on Blackboard. The announcement will

also be e-mailed to the student. It is the responsibility of the student to ensure that his/her e-mail
address is reflected correctly on the system, as well as to regularly visit the Blackboard page for
any marks, announcements, etc.
Appointments must be made by email. Please see Appendix A for the format of a professional
email.
CLASS PREPARATION
A student will be expected to prepare for class. You need to read through the chapter/section that
will be lectured in class BEFORE class and/or perform the relevant activities uploaded on
Blackboard (refer below).
Since lecture time is limited, it is impossible for the lecturer to deal with everything in detail in
class. If something was not specifically dealt with in class, it does not mean that it is not important
or that it can be left out automatically!
Activities (assignments, class tests, etc.) will be uploaded on Blackboard on a regular basis and
it is compelling that you complete the uploaded tasks. These will all form part of your predicate at
the end of the year. It is your responsibility to check Blackboard on a regular basis for uploaded
activities.
HOMEWORK
Handing in and marking of homework
Homework about any topic may be taken in at any time at the discretion of the lecturer (on a
surprise basis) and will form part of your predicate. Your homework therefore needs to be done
on loose pages and stapled together so that it can easily be handed in; do not do your homework
in a book.
HOMEWORK NOT HANDED IN DURING CLASS WILL NOT BE ACCEPTED AT A LATER

STAGE.
Homework prepares you for writing tests and the exam, therefore all homework needs to be done
in writing.
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You may not copy homework from a fellow student! Before handing in homework it needs to be
stapled to the supplied coversheet (keep your stapler with you).
Some questions will be given to you without a suggested solution and you will need to work out
the question in detail. The suggested solution to some questions will be provided beforehand but
you will still need to work out the question in detail without referring to the suggested solution.
Thereafter you must mark your own attempt and write down the principles that you have learned
and correct your answer.
The marks allocated for homework questions will NOT be debated as it is an impression mark.
3. STUDY MATERIAL
• The prescribed textbook in this module is Cost and Management Accounting:

Fundamentals – a southern African approach, Du Toit et al., 2020 (JUTA Publishers)
– Second edition
• Additional reading materials will be provided on Blackboard or printed to be distributed in
class. It is each student’s responsibility to ensure that he/she obtains and studies all
material in time.
4. ASSESSMENT
EMAC2624 will be a SUMMATIVE ASSESSMENT module for 2023. This means that
there will be formative assessments (semester tests and online tests/quizzes)
throughout the semester with an examination written at the end of the semester.
The sum of all of the formative assessment activities will contribute to the calculation of the
semester mark (predicate). The student’s final mark will be calculated with the predicate
counting 50% and the examination mark counting 50%.
Please take note that the dates, venues and times for all assessments will be made available on
Blackboard.
PLEASE NOTE: It is possible that scheduled test dates can change. It is the student’s
responsibility to be up to date with the latest test dates.
The following gives an indication of the duration of the main tests:
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Duration Date
Test 1 1.5 hours TBC
As per above table, you will write two compulsory semester tests during the year. Tests are
written on cumulative content as per faculty test policy.
Students will be required to write at least two of the three formal assessment opportunities. If
students did not participate in two of the three formal assessment opportunities, a mark of 0 will
be taken for the second semester test to calculate the semester mark, which could result in
students forfeiting the opportunity for admission to the examination.
The third test opportunity in all modules in the EMS faculty will be provided in a condensed test
timetable, which could result in students having to write more than one test on the same day. The
EMS faculty therefore highly recommend students to participate in the first two formal assessment
opportunities provided. Third test opportunities will furthermore cover all the module content of
the semester.
Students are NOT allowed to write all three tests. If a student decides to write all three, the
third opportunity will be disregarded and will not be marked or considered when calculating the
student’s predicate. The third semester test may not be written in an attempt to improve your
marks.
Minimum module mark for admission to the examination
To be admitted to the official examination, a minimum module mark of at least 40% must be
obtained to enable a student to write the final official examination.
Assessment of working students
Please note that the assessment for all working students will be done in the SAME way as the
campus students and predicates will be calculated on the same basis for ALL students. You are
registered at a residential university and no exceptions will be made for working students.
ARRANGEMENTS REGARDING TESTS
REMARKS: Hand out of test scripts

The date and time of return of marked test scripts will be communicated in advance to the
students. Please note that we make use of markers to mark the tests and it will therefore take
some time before the test scripts can be returned to the students.
Test scripts that should be remarked can only be handed back for remark during the class period
in which the tests are handed out. Sufficient time will be granted during the class period to review
the test papers for remark. Alternative arrangements might be made by the lecturer and this will
be communicated accordingly to students.
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It is important to remember that you can only ask for a remark if you attended the period in which
the test has been returned. You have to work through the test in the specific class period and
indicate where you think you have to get some extra marks.
Scripts must be returned to the lecturer before the end of the period in which the test scripts
are returned to students. No scripts will be accepted after the specific period. No exceptions will
be allowed, unless alternative arrangements have been communicated by the lecturer.
If a student makes arrangements with a friend to retrieve the scripts, it is important that the script
can also not be returned for a remark after the period in which the test scripts have been
handed back.
Lecturers keep the tests for a further 5 working days for students with a valid excuse to collect it.
After that, it will no longer be available.
UNCLAIMED TESTS
All unclaimed test scripts will be available at the lecturer’s office in the School of Accountancy for
maximum one week after handing them out in class. After the week, the tests will not be available
anymore.
ASSIGNED TASKS THAT WAS NOT HANDED IN ON THE SCHEDULED DATE WILL NOT BE
ACCEPTED AT A LATER STAGE.
You may not copy assignments from a fellow student!
PLAGIARISM
The EMS faculty supports the UFS Policy on the Prevention of Plagiarism and Dealing with
Academic Writing Misconduct and regards all forms of plagiarism as well as academic misconduct
in a serious light.
In the policy, plagiarism is defined as follows:

Plagiarism implies direct duplication of the formulation and insights of a source text with the
intention of presenting it as one’s own work. Plagiarism cannot be confirmed as a result of mere
similarities of words between the source text and the borrowed text as in the case of terminology,
commonly used phrases and known facts.
Plagiarism is distinguished from forms of academic writing misconduct such as:

• cribbing in tests and examinations;
• collusion and fabrication or falsification of data;
• deliberate dishonesty;
• purchasing assignments, dissertations and/or theses on the Internet and presenting such
documents as one’s own work;
• presenting the same work for more than one course or in consecutive years; and
• the submission of another person’s work as one’s own original work.
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Plagiarism is also applicable when no recognition is given to the original author. Internet
plagiarism applies to downloading, copying and pasting information as well as not acknowledging
these authors.
The EMS faculty uses software that will screen the abovementioned categories for misconduct.
The EMS faculty sees this in a very serious light and the measures as indicated in the UFS policy
will be followed.
If you would like more information on precisely what is meant with plagiarism and when you are
guilty of this, please go to I-LEARN (Blackboard) and look under the module code: EBW Skills.
You can also access the complete document on the UFS website, at www.ufs.ac.za and then
select About the UFS under UV Facts, look under Institutional Policy Documents.
APPEAL PROCEDURES AND HANDLING OF ACADEMIC ISSUES
If a student would like to appeal any process or procedure, the following steps must be followed:
The student must first go back to the lecturer to try and solve the problem. If the student feels that
he/she received an unsatisfactory answer, he/she can then make an appointment with the head
of department. Hereafter the case can be referred to the program director and if the student still
wants to appeal, he/she can then take the case in question to the dean of the faculty. Only
hereafter can the issue be taken to the vice‐rector and lastly the vice‐chancellor.
4.1. ASSESSMENT BREAKDOWN
Your module mark (predicate) will be calculated as follows:
ASSESSMENT TYPE (E.G. CONTRIBUTION TO MODULE

WRITTEN/ORAL/PRACTICAL) MARK (weight)
Test 1 Written semester test 40%
Test 2 Written semester test 40%
Blackboard Written/Online Quizzes 20%
quizzes,
Assignments, (Participation/attendance)
Homework
questions etc.
4.2. CALCULATION OF THE FINAL MARK
The final mark of this module is calculated as follows:
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50% of the module mark plus 50% of the examination mark.
EXAMINATION
There are five working days available to review the exam papers for remarks AFTER the final
marks are available. As per university policy, students are not allowed to review their scripts if
they have any outstanding fees. The review of exam papers is only allowed in the lecturer’s office
or as arranged by the lecturer. Students are not allowed to query exam results by phoning or
sending an email to the respective lecturer, if they are not on campus when the exam marks are
made available. A student is not allowed to remove the exam script from the lecturer’s office or
arranged venue.
The exam’s suggested solution will only be available for script inspection and not be handed out
to the students or made available on Blackboard.
HOMEWORK/CLASS TESTS
Handing in and marking of homework
Homework about any topic may be taken in at any time at the discretion of the lecturer (on a
surprise basis) and will form part of your predicate. Your homework therefore needs to be done
on loose pages and stapled together.
Students in EMAC2624 should EACH have his/her own personal file called an “Assessment file”.
This file should contain a record all the semester tests/activities/homework questions and
Blackboard (BB) assignments for the specific module.
Prior experience has shown that at the end of the academic year some students claim that they
had completed all the assignments/quizzes on BB. BB, however, reflect a mark of
zero/incomplete. NO ADJUSTMENTS to predicates CAN AND WILL BE MADE UNLESS THE
STUDENT PROVIDE SUPPORT OF SUCCESSFUL COMPLETION OF THE ASSIGNMENT
ON BB.
It is therefore the student’s OWN RESPONSIBILITY to compile his/her own file with the following
documents:
All semester tests written. Semester tests must be collected during the year and filed
accordingly in your own personal “Assessment file”.
You should also include in this file your half of the ‘yellow’ attendance slip that has been
stamped with the date on the back by the invigilators. This is your proof that you did submit
your semester test.
Screenshots/printscreens of all BB assignments/quizzes.
o A SCREENSHOT / PRINTSCREEN SHOULD BE SAVED AND PRINTED FOR EACH
AND EVERY ASSIGNMENT THAT HAVE BEEN COMPLETED SUCCESSFULLY.
o Alternatively if BB “kicked the student out” – the student MUST have proof of this. It is
NOT SUFFICIENT to send an email to the lecturer that the “system kicked me out”.
Copies of all homework questions marked and handed back to students.
Copies of class tests marked and handed back to students.
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BB Assessments will not be re-opened to students during the year if
students:
Do not provide a photo / screenshot of internet connection or any other

problems experienced during the assessment.
Send a query later than 2 working days after the assessment
deadline [in accordance with CTL’s e-assessment policy].
5. PREREQUISITES
Please consult the faculty yearbook for more information.
6. UPDATING OF MODULE INFORMATION AND RESOURCES
The module schedule and syllabus (study material), either orally or written, can be updated or
modified at any time by the lecturer or School of Accountancy. It is the responsibility of students
enrolled in this module to stay up-to-date with the schedule and syllabus. An announcement of
this type can be made in face-to-face class sessions or communicated on Blackboard. It is
recommend that students check Blackboard daily to keep up-to-date with the latest developments
in EMAC2624. Any work discussed during contact sessions can be used for assessment
purposes.
Blackboard is the main form of communication for EMAC2624. If you

do not use your @ufs4life e-mail address, it is THE STUDENT’S
responsibility to ensure that your e-mail address on all systems
(Gradebook and Blackboard) is updated so that you receive all
announcement notifications.
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7. SCHOOL OF ACCOUNTANCY TEACHING PHILOSOPHY AND CODE
OF ETHICS
School of Accountancy: University of the Free State – Code of Conduct

This code of conduct is applicable on all students who are registered for any module presented
by the School of Accountancy. That includes all students registered as full-time students,
occasional students, and students from other faculties. It is your responsibility to be familiar with
the contents of this code and it will be presumed that you are familiar with it. It will be available on
Blackboard under ‘General Information’.
Acceptance of the Code of Ethics
In the absence of proof to the contrary, you as a student at the School of Accountancy agree to
take full responsibility for your own learning, and you undertake to faithfully study on your own
and to participate in all assessment opportunities (for example homework, assignments, tests and
examinations). You further declare that you have read and understood the Code of Ethics of the
School of Accountancy and that you shall abide by the principles as set out in this code.
Teaching philosophy for the School of Accountancy

The vision of the University of the Free State is to be a university recognised across the world for
excellence in academic achievement and in human reconciliation. This vision forms the
foundation for the teaching philosophy of the School of Accountancy. The philosophy strives to
create a safe teaching and learning environment, encouraging critical thinking and equipping the
individual to engage in reflective and independent thinking, all within the context of a diverse
society. It will be available on Blackboard under ‘General Information’.
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Appendix A – Example of professional e-mail:
When you write an e-mail, please make sure that you use proper e-mail etiquette. This means
that your e-mail should have a subject, the name of the person to whom you address the e-mail
and your own name at the end to properly end the communication. Please see the example below:
If an e-mail is received that does not conform to this etiquette, the query will not be answered.
You can NEVER write an entire e-mail in only capital letters, as it means that you are shouting at
the person you are communicating with.
Please note that these guidelines can and should also be followed when sending an e-mail from
your cell phone.
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MODULE OUTCOMES
After successful completion of this module, you should be able to:
• Understand the nature and purpose of cost and management accounting.

• Understand the basic principles of cost classification and terminology.
• Define and understand different terms and concepts of administering and holding
inventory.
• Administer remuneration systems.
• Classify, analyse and allocate overheads by means of predetermined overhead rates.
• Understand the flow of cost and determine the cost of products.
• Administer integrated and cost ledger accounting systems.
• Operate basic job costing systems.
• Compile fixed, flexible and cash budgets.
• Demonstrate competency in the operation of process costing systems with equivalent
units and normal losses.
• Demonstrate competency in preparing income statements according to the direct and
absorption costing methods.
Detailed learning outcomes for each topic is available under each specific learning unit.
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LEARNING UNITS (MODULE JOURNEY)
In addressing the module outcomes above, the following learning units will be covered in this
module:
Learning unit 1: The Context of Management Accounting
Learning unit 2: Cost classification, behaviour and estimation
Learning unit 3: Material, Labour and Overheads
Learning unit 4: Direct and Absorption Costing
Learning unit 5: Cost-Volume-Profit (CVP) Analysis
Learning unit 6: Budgets
Learning unit 7: Process Costing
Learning unit 8: Job Costing
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Module Journey Map: EMAC2624
Figure 1: Module Journey Map EMAC2624
8
7 UNIT 8: Job
Costing
UNIT 4: UNIT 7:
Direct & UNIT 5: Process
UNIT 2: Cost Absorption CVP Costing
6
classification, Costing
behaviour and 5
estimation 4
3 UNIT 6:
2
Budgets
UNIT 3:
1 Material,
Labour and
UNIT 1: The context Overheads
of management
accounting
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LEARNING UNIT 1: THE CONTEXT OF MANAGEMENT ACCOUNTING
1. UNIT OVERVIEW
Management accounting is the use of accounting information that has been repurposed to provide
internal information that will aid management in making decisions and in planning and exercising
control over business activities to ensure maximisation of shareholders’ wealth. Cost accounting
is a method and a practise of accumulating and classifying costs for profit measurement, inventory
valuation and decision-making purposes.
There are four broad categories in which the themes within the discipline of Cost and Management
Accounting will be approached:
1) An introduction to Management Accounting & the Framework.

2) Cost Accumulation for Inventory Valuation & Profit Measurement.
3) Information for Decision-Making.
4) Information for Planning, Control & Performance Measurement.
A firm grasp and understanding of the concepts and principles in each topic will set a firm
foundation for understanding the advanced topics.
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The Context of Management Accounting
Purpose of
Management Decision making
Cost Accounting
Accounting process
• Cost accounting involves • Management Accounting • In order to maximise

cost accumulation for provides information to shareholder wealth, a process
inventory valuation to management to aid them in for making decisions needs to
meet external reporting making better decisions in be adopted by management in
requirements and profit steering the company. assessing opportunities
measurement for internal • The information needs of regarding achieving this
purposes. management differs from the objective.
• The more accurate the users that a set of general • The "decision making
costing of inventory, the purpose financial statements process" can be divided into
better the decisions are prepared in accordance the planning stage and the
management will be able with accounting body control stage. The control
to make. standards. stage includes identifying
• Management accounting deviations from the planned
and Cost Accounting are outcome and corrective action
used interchangeably. that management undertakes
to ensure objectives are met.
Figure 2: Concept Map
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2. UNIT-SPECIFIC LEARNING OUTCOMES
Learning Outcomes • Understand the concept of management accounting

• Explain the role of the management accountant in an
organisation
• Explain the financial information requirements for
companies, public organisations and societies
• Understand the importance of ethics
• Understand the role of CIMA as a professional body
• Identify key information that management would
require from management reports
• Calculate the main performance measures used in
management reports
• Understand how and why reports differ for different
types of organisations
• Identify different responsibility centres and their uses
3. UNIT-SPECIFIC STUDY MATERIAL
The Context of Management Accounting consists of specific preparation and content material that
will assist each student in understanding the key concepts of this unit. It is the responsibility of
each student to ensure that he/she familiarises him/herself with unit-specific study material.
.3.1. PREPARATION MATERIAL
• Chapter 1: Cost and Management Accounting – The Context of Management

Accounting
3.2. CONTENT MATERIAL
• Chapter 1: Cost and Management Accounting – The Context of Management

Accounting
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3.3. LECTURER GUIDANCE
The focus of this chapter is mostly on the theory. It is therefore important that each student ensure
they understand the theory and will be able to answer it in a test or examination.
4. LEARNING AND ASSESSMENT OPPORTUNITIES
The following learning and assessment opportunities will be completed in this unit:
DESCRIPTION OF THEME LEARNING OPPORTUNITIES
Concepts, calculations and Lectures, class discussions, homework questions

application
Basic application of Homework questions

principles
Detailed application of Homework questions

principles
The time and dates of learning opportunities will be made available on Blackboard.
5. QUESTIONS TO CONSIDER IN THIS UNIT
1. Can a general set of Financial Statements prepared in accordance with International

Financial Reporting Standards easily assist Financial Managers in making decisions?
2. What is the difference between Financial Accounting and Management Accounting?
3. What are the needs of different stakeholders?
4. What are the fundamental principles of the CIMA code of ethics?
5. What is the role of CIMA in developing the practice of management accounting?
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6. HOMEWORK
HOMEWORK ACTIVITY GUIDANCE
Review Questions 1.1 – 1.10 Prescribed Textbook
Exercise Questions 1.1 – 1.11 Prescribed Textbook
HW 1 Theory question
HW 2 Theory question
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Student notes on The Context of Management Accounting
1. What is management accounting?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
2. What is financial accounting?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
3. What are the differences between management and financial accounting?
Management Accounting Financial Accounting
Focus
Time Dimension
Emphasis
Information
GAAP
Content
Mandatory
Rules and regulations
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4. What are the characteristics of good information?
A - …………………………………………………………………………………………
C - ………………………………………………………………………………………….
C - ………………………………………………………………………………………….
U - ………………………………………………………………………………………….
R - ………………………………………………………………………………………….
A - ………………………………………………………………………………………….
T - …………………………………………………………………………………………..
E - …………………………………………………………………………………………..
5. What are the five fundamental principles in the CIMA Code of Ethics?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
6. Additional notes
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HW 1:
REQUIRED: Marks
(a) Explain the differences between Financial accounting and 4

Management accounting in tabular format.
Format 1
(b) List the five (5) fundamental principles included in the CIMA Code 5
of Ethics.
Total for question 10
HW 2:
The purpose of management accounting is to provide useful information to

management, which is used to assist them in planning, directing, motivating and
controlling the operations.
REQUIRED: Marks
(a) Compare financial accounting and management accounting in 5

tabular format in at least 5 different areas.
(b) Name the characteristics of good information. 4
(c) Briefly discuss the different levels of planning. 3
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LEARNING UNIT 2: COST CLASSIFICATION, BEHAVIOUR AND
ESTIMATION
1. UNIT OVERVIEW
The collection, classification and analysis of costs are fundamental to management accountants
as it assists them in planning, control and decision-making. This unit will focus on:
1. Cost Assignment: It involves cost tracing, the assignment of *direct costs and cost
allocation of *indirect costs.
2. Cost Behaviour: It involves the way in which costs are affected by fluctuations in the level
of activity.
Costs can either be treated as product costs (allocated to the products you produce) or a period
cost (treated as an expense). It is important to distinguish between the different costs since they
influence the value of inventory as well as the profit the entity may report.
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Cost Classification, Behaviour and Estimation
Cost Object Direct Costs

Prime Cost
• An activity for which • All direct • Costs that can be

a separate manufacturing specifically traced to
measurement of costs a cost object
costs is needed • Consists of • Cost needs to be
• The cost object is Material + Labour specifically &
different for each exclusively
entity
Opportunity
Fixed Costs
Cost Variable Costs
• Constant over a wide
• Measure the • Varies in range of activity for a
opportunity foregone proportion to the specified time period.
when one course of volume of activity • All costs are variable
action requires that • VC is fixed per unit in the long run
an alternative be but variable in total
given up.
Figure 2: Concept Map Template
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Learning Outcomes • Explain cost object and cost centre

• Calculate the total cost of a cost object
• Describe the nature and behaviour of variable, fixed
and semi-variable costs
• Prepare a total cost statement
• Apply different methods of estimating costs
• Understand and apply the high-low method
Exclude the following • Scatter graph method

• Least squares method
Cost classification, behaviour and estimation consists of specific preparation and content material
that will assist each student in understanding the key concepts of this unit. It is the responsibility
of each student to ensure that he/she familiarises him/herself with unit-specific study material.
3.1. PREPARATION MATERIAL
• Chapter 2: Cost and Management Accounting
This chapter forms the basis of all management accounting topics. It is therefore important that
the student have a thorough understanding of all concepts contained in this chapter to ensure
he/she has a proper foundation for the rest of this module.
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application

principles
Detailed application of Advanced homework questions

principles
1. What is the difference between “cost” and “cost object”?

2. What is meant by “cost classification”?
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6. HOMEWORK
Exercise Questions 2.2a i), 2.3 – 2.9, Prescribed Textbook

2.10a, 2.11 & 2.12
HW 1 Fixed costs, variable costs, mixed costs and

cost behaviour
HW 2 Calculation of different costs
HW 3 Fixed costs, variable costs and cost behaviour
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Student notes on Cost Concepts, Classification and Behaviour
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1. Accounting systems are used for:
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
2. What is a cost?
……………………………………………………………………………………………………
……………………………………………………………………………………………………
…………………………………………………………………………………………………….
3. What is a cost object?
……………………………………………………………………………………………………
……………………………………………………………………………………………………
…………………………………………………………………………………………………….
4. Cost classification according to PURPOSE:
DIRECT INDIRECT
Eg. Eg.
PRODUCT PERIOD
Eg. Eg.
MANUFACTURING NON-MANUFACTURING
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5. Cost classification according to BEHAVIOUR:
……………………………………………………………………………………………………
……………………………………………………………………………………………………
…………………………………………………………………………………………………….
VARIABLE FIXED
Eg. Eg.
SEMI-VARIABLE STEPPED FIXED COST
Eg. Eg.
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6. Cost classification for DECISION MAKING PURPOSES:
RELEVANT IRRELEVANT
Eg. Eg.
OPPORTUNITY COST SUNK COST
7. Cost estimation
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
………
8. Name the three methods for cost estimation
1) ……………………………………………………………………………………………
…
2) ……………………………………………………………………………………………
…
3) ……………………………………………………………………………………………
…
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9. High-low examples
Example 1:
Assume the following costs for different activity levels
UNITS PRODUCED TOTAL COSTS

1 000 250 000
3 000 320 000
6 000 530 000
7 000 550 000
1. What is the variable cost per unit?

2. What is the total fixed cost?
Example 2:
If we produce 1 000, the total cost is R250 000. If we produce 7 000 units, the total cost
is R550 000.
Example 3:
Our current activity level is 1 000 units for which we incur a cost of R250 000. If we
produce an extra 6 000 units, we incur an additional cost of R300 000.
10. Additional notes
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HW 1
One of the large South African Universities is considering a new course: a master’s
degree in management accounting. The number of students accepted on to the course
each year is expected to vary from 15 to 20. The master’s degree will consist of three
components: course work, group work and an individual dissertation.
Course work:
This component will require students to complete one year of course work that will
comprise four semester tests and one final exam. The university will supply each student
with course notes and lecture notes. The cost of providing the students with the relevant
stationary (notes and tests and exam papers) is R400 per student.
A retired professor, who is no longer otherwise involved with the university, will conduct
the classes. He will be paid R200 000 for the year to lecture up to 20 students exclusively.
There will also be a number of guest lecturers who will collectively be paid R10 000.
Group work:
The group work component will require students to submit projects in groups of no more
than five students each. As a result, for every five students or part thereof accepted on to
the course, marking costs will increase by R600.
Individual dissertation
The university will assign a university lecturer to each student to supervise the student in
terms of the dissertation. The lecturers are paid R5 000 for each student supervised. Two
markers will be responsible for marking each dissertation. Each marker is paid R1 000
per dissertation marked.
In addition to the teaching and evaluation costs mentioned above, the university also
incurs administrative costs. These costs include maintenance of facilities, cleaning,
student records, finance and technological infrastructure. All courses are charged a
general fee that is calculated at R2 000 per course plus R500 per student.
39 | P a g e
REQUIRED: Marks
(a) Calculate the total variable and fixed costs related to the course 6
work and individual dissertation components if only 19 students
registered for the course. You can ignore group work and
administration costs for this part of the question.
(b) Discuss the cost behaviour of the additional marking costs related 3
to the group work component.
(c) Discuss whether the administrative costs charge to each course 3
can be classified as a mixed cost.
(Adapted from Principles of management accounting: a South African perspective)
HW 2
Tracy has a small company manufacturing wooden furniture. She has given you the
information below and asked that you help organise the data so that she can use it to
compile her management reports:
Expense Total spent
Wood carvers’ wage R125 000

Rent paid for the production premises R72 000
Electricity paid for the production premises R12 500
Wood issued to the wood carvers R26 000
Lease on the administration computer R1 800
Advertising on the local radio station R4 000
Audit fees paid R2 000
REQUIRED:
a) List the direct material and direct labour (2)

b) Calculate the manufacturing overhead costs. (2)
c) Calculate the conversion costs. (2)
d) Calculate the total manufacturing costs. (2)
e) Calculate the total non-manufacturing costs. (2)
(Show all formulas and calculations)
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HW 3
Mark, the owner of Quick Car Wash has found that his total costs change depending on
the number of cars he washes per month. Mark wants to predict what his costs are
going to be in the future, and has asked you to assist him with some calculations. He
has given you the following information for the previous three months:
June July August
Number of cars washed 1 500 2 000 1 900
Total cost for the month R61 000 R76 000 R63 500
REQUIRED: Marks
(a) Calculate the variable cost per unit. 2
(b) Calculate the total fixed cost per month. 2
(c) Predict the total cost for December if Mark washes 2 200 cars. 2
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LEARNING UNIT 3: MATERIAL, LABOUR & OVERHEADS
1. UNIT OVERVIEW
This learning unit consists of 3 important chapters, since it lays the foundation for other topics.
Chapter 3:
Raw materials, work-in-progress units and finished goods are all classified as inventory items and
are subject to the principles contained in IAS 2 – Inventory. This is because IAS 2 defines
inventory as:
Assets:
a) Held for sale in the ordinary course of business (Finished goods);
b) In the process of production for such sale (Work-in-progress); or
c) In the form of materials or supplies to be consumed in the production process or in the
rendering of services (Raw material)
Inventory items can be valued using the First-In-First-Out (FIFO) method or the weighted average
method. Last-In-First-Out (LIFO) is not acceptable in terms of IFRS and won’t be discussed in
this chapter.
Chapter 4:
Labour relationships exist when there is an employer (the company) that pays remuneration to
the employee (worker). Depending on the contract, the labour expense can consist of a fixed
monthly salary or an hourly wage. Additionally, the expense can include deductions for UIF,
PAYE, medical aid, pension funds etc. The company can also contribute money to the medical
aid and pension fund on the worker’s behalf. It is therefore important to understand the employer-
employee relationship since it can influence the journal entries you are required to post, a great
deal.
Chapter 5:
Manufacturing overheads are those indirect costs you incur to manufacture a product, such as
factory electricity costs, factory rent, depreciation of machinery, etc. Since these costs are
indirect, they cannot be accurately traced back to the cost object (product you manufacture).
However, IAS 2 requires the company to allocate these costs to its inventory items as they relate
to the production of finished goods. Non-manufacturing overheads are also indirect costs, but
these costs are not allocated to products. It is therefore treated as a period cost (expense).
42 | P a g e
Material, Labour & Overheads
FIFO Periodic vs
Weighted Perpetual
Average
• Periodic inventory
• Items received
system records
first, will be • A new average inventory in a
used/sold first cost is calculated purchases
• Cost follows the every time a unit is account
physical flow of bought/sold. • Perpetual
material • Valuation method inventory system
• Valuation method
records inventory
items in an
inventory account.
Gross wage
Net wage
• An employee’s Predetermined
remuneration overhead rate (POR)
• An employee’s
before any
remuneration after
deductions are • Budgeted
all deductions are
subtracted overheads ÷
subtracted
budgeted activity
• Rate used to
allocate overheads
to cost objects
Over/under
Allocated costs
recovery
• Actual units ×
POR • The difference
• Overheads between allocated
attributed to a cost costs and actual
object costs
43 | P a g e
Chapter 3
Learning Outcomes • Value inventory using first-in-first-out and weighted average

methods
• Record all accounting entries in respect of inventory
Exclude the following: • Inventory holding policy

• Economic order quantity and re-order levels
• Inventory management systems
Chapter 4
Learning Outcomes • Differentiate between the types of remuneration

• Calculate the net wage/salary of an employee
• Record all labour-related entries in the accounting records
Exclude the following: • Identify and explain the various cost control measures put in
place to monitor employee remuneration
• Calculate the employee and employer contributions made to
the various funds
• Labour cost control
• Wage incentive schemes
• Labour recovery rate
• Calculate and apply the learning curve
Chapter 5
Learning Outcomes • Differentiate between manufacturing and non-manufacturing

overheads
• Differentiate between budgeted, allocated and actual
overheads
• Allocate and apportion manufacturing overheads to
manufacturing and service cost centres (primary allocation)
• Calculate a predetermined overhead rate
• Apply overheads to products using a predetermined
overhead rate in order to calculate the overhead cost per
product
• Calculate under- and over-absorbed overheads
• Record all accounting transactions associated with
manufacturing overheads
Exclude the following: • Re-apportion overheads collected in the service department

to manufacturing centres (secondary allocation)
• Understand and apply basic activity-based costing (ABC)
principles
• Use ABC to apportion overheads in product costing
• Use the algebraic method to apportion overheads
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Material, Labour and Overheads consist of specific preparation material and content material that
• Chapter 3 - 5: Cost and Management Accounting
• Chapter 3 - 5: Cost and Management Accounting
A complete understanding of this unit is crucial in setting a successful approach to the rest of the
module.

application
principles
principles
45 | P a g e
1. How will the accounting entries look for a service organisation?

2. How will overtime affect the company?
3. What does an over- or under-recovery mean?
6. HOMEWORK
Review Questions 3.1, 3.2, 3.6, 3.9, 4.2, Prescribed Textbook

4.4, 4.5, 4.7, 5.1 – 5.6 and 5.9
Exercise Questions Prescribed Textbook
3.1, 3.3, 3.6, 3.8
4.1 (Part A), 4.3 (a &b) 4.5 (Part A)
5.1, 5.2 (a-c), 5.5, 5.6
HW 1 Manufacturing overheads and High-low method
HW 2 Inventory valuation
HW 3 POR and over/under recovery
HW 4 Overhead allocation
46 | P a g e
Student notes on raw material, labour and overheads
Chapter 3
1. Extract from IAS 2:
2. What are the different types of inventory held by a business?

1) ……………………………………………………………………………………
2) ……………………………………………………………………………………
3) ……………………………………………………………………………………
3. The Inventory Cycle
Purchase Purchase
Need Quote
requisition order
Goods received
Invoice Payment
note
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
…………
47 | P a g e
4. Inventory systems
Periodic ……………………………………………………………………………………………
……………………………………………………………………………………………………
…
Perpetual ………………………………………………………………………………………….
……………………………………………………………………………………………………
…
5. Inventory valuation methods
FIFO ………………………………………………………………………………………………
……………………………………………………………………………………………………
…
Weighted average
………………………………………………………………………………..
……………………………………………………………………………………………………
…
6. FIFO and Weighted average example
The purchases and sales of finished goods by Naartjie Ltd for a five-month period are
as follows:
1 July 2020 Received 2 000 units @ R10 per unit

9 July 2020 Received 520 units @ R10.50 per unit
18 July 2020 Sold 1 400 units
5 August 2020 Received 800 units @R11.50 per unit
22 August 2020 Received 600 units @R12.50 per unit
15 September 2020 Sold 1 240 units
14 October 2020 Sold 480 units
8 November 2020 Received 1 000 units @R11 per unit
24 November 2020 Sold 760 units
There was no opening inventory of the finished goods.
Calculate the cost of sales and the closing inventory value for each of the transactions
shown above.
48 | P a g e
7. Accounting entries
Purchase of inventory:
Dr …………………………………………….
Cr …………………………………………….
Inventory issued to production process:
Dr …………………………………………….
Cr …………………………………………….
Completed inventory:
Dr …………………………………………….
Cr …………………………………………….
8. Additional notes
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Chapter 4
1. What is labour?
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
………
2. What are the methods of paying employees?
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
………
3. What is overtime?
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
………
4. Accounting entries
Gross salary:
Dr …………………………………………….
Cr …………………………………………….
Cr …………………………………………….
Cr …………………………………………….
Cr …………………………………………….
Cr …………………………………………….
Employer contributions:
Dr …………………………………………….
Cr …………………………………………….
Cr …………………………………………….
Cr …………………………………………….
Payment of wages:
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Dr …………………………………………….
Dr …………………………………………….
Dr …………………………………………….
Dr …………………………………………….
Dr …………………………………………….
Cr …………………………………………….
Recording hours worked:
Dr …………………………………………….
Dr …………………………………………….
Cr …………………………………………….
5. Additional notes
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Chapter 5
1. What are overheads?
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……
2. Name the two types of overheads
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……
3. What are the steps to follow to allocate overheads to products?

1) ……………………………………………………………………………………………
…
2) ……………………………………………………………………………………………...
3) ……………………………………………………………………………………………
…
4) ……………………………………………………………………………………………
…
4. Why do we allocate overheads to products?
5. Additional notes
52 | P a g e
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HW 1
The Western Moon Hotel is a prestigious hotel that caters to both foreign and local
visitors. Due to the weakening in the Rand, the number of foreign visitors has increased.
The hotel manager wanted to see the impact this had on housekeeping costs and
requested an analysis thereof. The housekeeping department’s costs and number of
rooms occupied during the previous four months were as follows:
Month Number of rooms Housekeeping costs

occupied (R)
December 210 93 000
January 170 81 000
February 110 63 000
March 140 72 000
REQUIRED:
a) Use the high-low method to separate the housekeeping costs into the variable and
fixed cost components. (4)
b) What would the expected total housekeeping costs be if 240 rooms are occupied
during a specific period? (2)
HW 2
(Source: Cost and Management Accounting)
Jane’s perfume boutique has recorded the following inventory movement of “Perfect
Perfume” in March:
Receipts 2 March 60 bottles at R140 each

9 March 60 bottles at R147 each
Issues 3 March 50 bottles
10 March 50 bottles
REQUIRED:
Calculate the following:

a) The value of the closing inventory using the FIFO method and a periodic inventory
system; and (5)
b) The value of closing inventory using the weighted average method and a perpetual
inventory system. (5)
54 | P a g e
HW 3
The production manager of Walt (Pty) Ltd has recently attended a management course
where the allocation of overheads was discussed.
The following correct information relates to the past year’s activities:

Actual manufacturing overheads R175 000
Actual direct labour hours 25 000 hours
Budgeted manufacturing overheads R125 000
Actual sales R600 000
Budgeted direct labour hours 20 000 hours
Actual gross profit for the year R185 000
REQUIRED:
a) Calculate the predetermined overhead rate using direct labour hours as allocation
base. (2)
b) Calculate overheads over- or under-absorbed. (4)
c) Calculate actual prime cost (4)
HW 4
Ultra Ltd manufactures two products, L and H, using similar equipment and processes.
Ultra Ltd manufactures no other products and these activities are exclusively for the
manufacturing of these two products. An extract of the production data for August 2018
is as follows:
L H
Units produced 4 000 10 000
Direct labour hours per unit 1 2
Machine hours per unit 3 2
Set-ups in the period 10 30
Orders handled in the period 25 25
Direct labour cost per unit R2 R2
Direct material cost per unit R3 R4
Overhead cost incurred and cost drivers associated with these costs were as
follow:
Rand Cost driver
Machine activity R200 000 Machine hours
Production set-ups R20 000 Set-ups
Engineering stores R40 000 Orders handled
55 | P a g e
REQUIRED: Marks
(a) Calculate the overhead cost per unit of product L and H for Ultra Ltd 12
for the month of August 2018
(b) Calculate the total cost per unit of product H that is manufactured by 3
Ultra Ltd for the month of August 2018
Show all calculations clearly. Round all calculations and your final
answer to 2 decimals, i.e. 4,138329 rounded to 4, 14.
HW 5
LTM Ltd. is a manufacturing company in Bloemfontein who have recently undergone a

restructuring and need to allocate and apportion their overhead costs for the next
accounting period. They asked you, as a cost accounting student, to assist them with this
task. They have provided you the following information:
Budgeted
Values
Direct material R550 625
Direct labour R413 867
Indirect material: Department A R16 850
Indirect material: Department B R6 890
Indirect labour: Administration department R7 000
Indirect labour: Stores receiving department R5 000
Indirect labour: Department A R16 500
Indirect labour: Department B R6 000
Factory Rent R787 500
Insurance on machinery R149 000
Factory electricity R385 000
Cafeteria costs R23 400
The information below is also available relating to the activities within each department:
Production Service
Department Department Stores Administra-
A B receiving tion
Floor area (m²) 1 000 1 250 750 150
Book value of R110 000 R175 000 R4 000 R9 000
Machinery
Kilowatt usage 46 000 143 000 1 300 2 200
Direct labour hours 1 400 1 920 680 0
Machine hours 1 400 2 840 0 0
Number of workers 10 12 4 2
Material usage (kg) 32 745 20 000 0 0
56 | P a g e
REQUIRED: Marks
(a) You are required to assist LTM Ltd to determine the primary 12
allocation and apportionment of manufacturing overhead costs to the
different departments. Calculate the total manufacturing overheads
for Department A, Department B, stores receiving and
administration.
(b) Assume after the secondary allocation has been completed the total 2
overheads for Department A and Department B are R592 250 and
R810 890 respectively. Determine the budgeted overhead rates for
each production department on the basis of the Floor space for
Department A and Direct Labour Hours for Department B.
answer to 2 decimals, i.e. 4,138329 rounded to 4,14.
HW 6
SecondTry Ltd is a newly established manufacturing company in Bloemfontein.

Management still needs to allocate and apportion their overhead costs and they have
approached you, a cost accounting student, to assist them with this task. They have
provided you the following information:
Budgeted Values
Indirect material: Department A R32 800
Indirect material: Department B R28 950
Indirect labour: Administration department R15 000
Indirect labour: Stores receiving department R19 000
Indirect labour: Department A R25 500
Indirect labour: Department B R19 600
Factory Rent R450 000
Insurance on machinery R270 000
Factory electricity R140 000
Depreciation on machinery R432 000
The information below is available relating to the activities within each department:
Production Service
Department Department Stores Administra-
A B receiving tion
Floor area (m²) 1 000 800 400 300
Book value (Machinery) R170 000 R150 000 R25 000 R15 000
Kilowatt usage 16 000 14 000 2 000 3 000
Direct labour hours 1 400 1 920 680 0
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Machine hours 1 400 2 840 0 0
Number of workers 10 12 4 2
REQUIRED Marks
(a) Calculate the primary allocation of overheads for Department A,

12
Department B, stores receiving and administration.
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LEARNING UNIT 4: DIRECT & ABSORPTION COSTING
1. UNIT OVERVIEW
There are two methods that can be used to determine the cost of a product, namely absorption
costing or direct costing. Each one of these methods have different principles and are used for
different functions. The main difference between the two methods is the treatment of fixed
production costs.
Absorption costing, or full costing, states that both fixed and variable production costs should be
included in the value of inventory (treated as a product cost) and all non-manufacturing costs are
expensed in the period in which they occur (period cost). This follows the same principles as
required by IAS 2. Absorption costing is therefore more appropriate for external reporting.
Direct costing (also marginal costing or variable costing) works on the principle that only variable
production costs should be included in the value of inventory (and therefore treated as product
costs). All fixed costs, whether it is manufacturing or non-manufacturing, is expensed in the period
in which it occurs (and therefore treated as a period cost). Direct costing is therefore more
appropriate for decision-making.
59 | P a g e
Direct & Absorption Costing
Direct Normal
Absorption
costing activity
costing
• The average
• Variable / marginal capacity an entity
• Full costing
costing uses to satisfy
• Allocates all
• Only variable customer
manufacturing
manufacturing costs demand over a
costs to products
are assigned to long period
• Values inventory
at their total products • Takes seasonal
manufacturing • Values inventory at fluctuations into
costs their total variable account
manufacturing costs
Volume
Budgeted variance
activity
• Results when
there is an over-
• The capacity the
or under-recovery
entity expects to
of fixed overheads
use in the next
budget period
60 | P a g e
Learning Outcomes • Differentiate between direct and absorption costing

• Calculate the cost per unit under direct and absorption
costing
• Compile a statement of comprehensive income using
both the direct and absorption costing methods
• Reconcile the profits between the direct and absorption
costing methods
• Provide arguments for and against direct costing
• Provide arguments for and against absorption costing
Exclude the following: • Weighted average method of inventory valuation
Direct and Absorption costing consists of specific preparation material and content material that
The principles contained in this chapter is quite important for CVP and Decision-making as both
these units depend on direct costing principles. It is therefore important that the student spend
time on this unit to ensure he/she understands the principles of direct and absorption costing.
61 | P a g e

application

principles

principles
1. When should I use direct costing and absorption costing?

2. What are the advantages and disadvantages of direct and absorption costing?
3. Can I perform a reconciliation between the profit of the absorption and direct costing
system?
62 | P a g e
6. HOMEWORK
Exercise Questions 12.2 – 12.7, 12.8 Prescribed Textbook

(total variable cost = R9.50) and 12.9 –
12.11
HW 1 Statements and reconciliation
HW 4 Statements, reconciliation and advantages
HW 5 Statement
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Student notes on Direct and Absorption Costing
1. Format to use for direct and absorption costing questions
Note: This is a suggested format and not a reporting requirement
Direct Costing Absorption Costing
Sales xxx xxx

Cost of Sales: (xxx) (xxx)
Opening inventory
Fixed Cost n/a xxx
Variable Cost xxx xxx
Production cost
Fixed Cost n/a xxx
Closing inventory
Fixed Cost n/a xxx
Over/(under) recovery n/a xxx/(xxx)

Non-manufacturing variable cost (xxx) n/a
Contribution xxx
Fixed Cost
Production (xxx) n/a
Non-production (xxx) n/a
Gross Profit xxx
Non-manufacturing cost
Fixed Cost n/a (xxx)
Variable Cost n/a (xxx)
Net Profit xxx xxx
2. Direct costing principles
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
………
3. Absorption costing principles
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……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
………
4. Why is there a difference in profit between direct and absorption costing?
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
………
5. Complete the following by stating which system will have the higher profit
When production equals sales:

………………………………………………………………….
When production exceeds sales: ……………………………………………………………….
When sales exceeds production: ……………………………………………………………….
6. Reconciliation of profit between direct and absorption costing
Profit for Absorption Costing xxx

+ Fixed cost in Opening inventory xxx
- Fixed cost in Closing inventory (xxx)
Profit for Direct Costing xxx
7. Advantages and disadvantages of direct costing
Advantages Disadvantages
8. Advantages and disadvantages of absorption costing
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Advantages Disadvantages
9. Additional notes
66 | P a g e
HW 1
Sonny Limited manufactures a single product that is sold to retailers at R40 per unit. Fixed
manufacturing overheads are allocated as a percentage of direct material cost. The
budgeted fixed manufacturing overheads amount to R75 000 and are based on a
budgeted direct material cost of R50 000.
The total actual production and other costs for 2016 are as follows:
Direct material R 44 800

Direct labour R 90 400
Variable manufacturing overheads R 31 200
Variable selling and admin cost R 1 500
Fixed marketing cost R 30 000
Fixed manufacturing overheads R 70 000
Sonny Limited produced 8 000 units in 2016. There were 3 000 units in opening inventory
and 10 000 units were sold. Production was 20% more in 2017 than in 2016 and there
were 1 300 units in closing inventory.
Direct material, direct labour and variable manufacturing costs increased by 10% in 2017.
Fixed marketing costs increased by 5% in 2017. The actual fixed manufacturing overhead
cost for 2017 amounted to R85 000. The selling price and all other costs remained
unchanged in 2017.
REQUIRED:
a) Calculate the number of units sold during the 2017 year. (4)
b) Calculate the unit cost for 2016 and 2017 using the absorption costing (6)
method.
c) Compile the statement of comprehensive income for 2017 using the (7)
direct costing method.
d) Assume that the net profit for the statement of comprehensive income
using the absorption costing method is R47 013. Reconcile the
difference in profit (if any) between the absorption profit provided and (3)
your answer in (c) above.
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HW 2
Omega Ltd produces a single product and started operations on 1 January 2018. The
following information is available for the 2018 financial year:
Direct material per unit R10.00

Direct labour per unit R4.00
Variable manufacturing overheads per unit R1.00
Fixed costs per annum:

Total fixed manufacturing overheads R90 000
Total fixed non-manufacturing overheads R200 000
Normal production is 40 000 units per annum and each unit is sold at a sales price of
R80.00.
For 2018, actual production amounted to 45 000 units while actual sales amounted to
30 000 units. There was no opening stock at the beginning of the 2018 financial year.
Total budgeted fixed overheads were the same as the actual total fixed overheads for the
2018 financial year.
REQUIRED: Marks
(a) Compile the actual statement of profit or loss for the 2018
financial year for Omega Ltd using:
20
i) the direct costing method,
ii) the absorption cost method
(b) Reconcile the profits between the absorption and direct costing 2
income statements.
Total for question 3 22
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HW 3
Rustic Ltd manufactures a unique coffee table and sells a single product. The following
information is available:
Normal production is 10 000 units per annum. For 2018, sales for the year comprised
10 000 units and production 12 000 units. There were 2 000 finished units at the
beginning of the year. Overheads are absorbed on a per unit basis.
The following information is available for 2017 (the previous financial period):
R
Selling price per unit 800
Variable cost per unit:
Direct materials 200
Direct Labour 180
Variable manufacturing overheads 60
Selling and administrative costs 30
470
Fixed costs:
Manufacturing (As Budgeted) 900 000
Selling costs 50 000
Administration costs 25 000
975 000
Additional Information:
• Selling and administrative costs increased with R2 per unit in 2018 due to contract
changes.
• Due to a new rental agreement in 2018 with regards to the factory, an increase of
R90 000 in the actual fixed manufacturing cost took place.
REQUIRED: Marks
(a) Compile statements of comprehensive income for the year

31 December 2018 for Rustic Ltd using:
20
iii) the direct (variable) costing method,
iv) the absorption costing method.
(b) Reconcile the profits from the direct (variable) costing method to 2
the profit calculated from the absorption costing method.
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HW 4
Drone Limited produces a product using 1.75 machine hours per product. In a typical
month, Drone Limited produces 6 000 units. Budgeted fixed manufacturing overheads
are R136 500 per month and are allocated to products based on machine hours.
During September 2019, Drone produced 5 900 products. The following additional actual
information is available:
Units sold 5 200

Units in opening inventory 200
Direct material cost per unit R11.00
Direct labour cost per unit R21.50
Variable manufacturing overheads per unit R5.00
Packaging cost per unit R3.20
Total fixed marketing cost R120 000
Total sales revenue R494 000
Commission paid 5%
Each unit produced must be wrapped in special packaging and this is considered to form
part of the production process.
REQUIRED: Marks
(a) Compile statements of comprehensive income for the month using: 18
i) the direct (variable) costing method
ii) the absorption costing method
(b) Reconcile the profit calculated above using the direct (variable) 2
costing method and the profit calculated using the absorption costing
method.
(c) Explain two advantages of absorption costing method. 2
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HW 5
Great Escape (GE) Ltd specialise in hiking equipment and manufactures a waterproof
backpack that sells for R220. The company manufactured and sold 15 500 backpacks
during the month. The following additional information, for this activity level, is available:
Total direct material cost R379 750

Direct labour cost per hour R12
Direct labour hours needed per product 2.5
Total variable manufacturing overheads R217 000

Sales commission (of the selling price) 5%
Other fixed costs in total R320 000
REQUIRED Marks
(a) Calculate G.E.’s net profit for the month. Compile an income
statement making use of variable costing principles to present your 5
answer.
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LEARNING UNIT 5: COST-VOLUME-PROFIT (CVP) ANALYSIS
1. UNIT OVERVIEW
Cost-volume-profit (CVP) analysis is concerned with the relationships between selling prices,
sales and production volumes, costs and profits. The analysis is based on the following equation:
𝑦𝑦 = 𝑚𝑚𝑚𝑚 + 𝑐𝑐
Where:
y = Profit
m = contribution per unit
x = number of units sold
c = Total fixed costs
Stated differently, the profit equation can be written down as: Profit = Sales – Variable costs –
Fixed costs.
This above-mentioned equation forms the basis of CVP and can be used to solve all questions
and problems that relates to this chapter.
CVP is based on seven assumptions. The most important assumption, is that you need to use
variable costing principles when dealing with CVP.
CVP can be used for the following:
1) Calculation of breakeven point

2) Calculation of margin of safety
3) Calculation of number of units to be sold to obtain a certain profit
4) Assisting with decision-making
5) Conducting a “What if” analysis
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Cost-Volume-Profit (CVP) analysis
Breakeven Contribution
point Contribution margin
• Level of sales where • Selling price less • Ratio of

no profit or loss is all variable costs contribution to
made (manufacturing sales
• Always round up to and non- • Can be used to
the next whole manufacturing) determine the
number breakeven point in
• Fixed costs ÷ Rands
contribution per unit
Margin of Margin of safety

safety percentage
Relevant range • Shows by how much

• Shows by how much
sales can decrease
sales can decrease
• The range of before the company
before the company
production/sales will start making a loss
will start making a loss
that is within the in a percentage
operating capacity • Can be calculated in
• (Sales – breakeven
of the company units or Rands
sales) ÷ Sales
• Sales – breakeven
sales
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Learning Outcomes • Calculate the breakeven point for a particular product

• Calculate the sales volume required to achieve the
target profit
• Determine the extent to which sales exceed the
breakeven point
• Conduct a “what if” analysis to determine the effect of
changes in costs and sales volume on net profit
Cost-volume-profit analysis consists of specific preparation material and content material that will
assist each student in understanding the key concepts of this unit. It is the responsibility of each
student to ensure that he/she familiarises him/herself with unit-specific study material.
The first step when dealing with CVP questions is splitting mixed costs into its fixed and variable
components. Thereafter, all variable costs should be shown per unit, and all fixed costs in total.
This is the basis on which CVP is built.
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application

principles

principles
1. Do I know the assumptions on which CVP is based?

2. Do I understand how breakeven and margin of safety works?
3. Can I perform accurate calculations for breakeven and margin of safety?
4. Can I perform accurate calculations for a target profit?
5. Can I perform accurate calculations for a “What if” analysis?
6. How does direct and absorption costing principles influence CVP principles?
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6. HOMEWORK
HW 1 Break-even and margin of safety
HW 2 Break-even
HW 3 Contribution, breakeven, margin of safety and

target profit
HW 4 Cost per unit, break-even and margin of safety
HW 5 Contribution, break-even and target profit
HW 6 Break-even and margin of safety
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Student notes on CVP
1. What are the assumptions of CVP?
Relevant range
……………………………………………………………………………………
Selling price per unit ……………………………………………………………………………..
Variable cost per unit …………………………………………………………………………….
Units produced and sold
…………………………………………………………………………
Linear relationship
………………………………………………………………………………..
Sales mix ………………………………………………………………………………………….
Change in total costs and revenues ……………………………………………………………
2. What is a contribution income statement?
R
Sales xxx
- Variable costs (xxx)
Contribution xxx
- Fixed costs (xxx)
Net profit xxx
3. What is contribution?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
4. What is the contribution margin ratio?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
5. What is the break-even point?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
6. What is the margin of safety?
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………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
7. What is target profit analysis?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
8. What are the limitations of CVP?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
9. Additional notes
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HW 1
(21 Marks; 31.5 Minutes)
Hawk (Pty) Ltd (Hawk) is a pet food producer who, over the past 10 years, has created
their own unique brand of bird seed that has become very popular in the Bloemfontein
region. These seeds are sorted, measured and added together into packets of 1 kg each.
The process is currently done exclusively by hand. Hawk has a contribution margin of
35% and a 31 December 2016 year-end.
The following information has been provided to you:
Cost structure for the year ending 31 December 2016.
R
Sales for the year 1 500 000
Variable Cost per unit 32.50
Fixed Manufacturing overhead 200 000
Selling costs (Note 1) 240 000
Administration costs (Fixed) 100 000
Note 1: Selling costs are both fixed and variable. If the current level of sales were to
decrease to 25 000 units the expense would decrease to a total of R 220 000. The
variable sales cost has already been included in the variable cost per unit.
Hawks have planned their production in such a way that they have no opening or closing
inventory in the current year. This is expected to be the same in the next year. Ignore tax
for the purposes of this question.
REQUIRED: Marks
(a) Calculate the following using Cost/Volume profit (CVP) principles:

• Number of units produced and sold. 4
(b) Assuming the number of units produced and sold is 30 000. Calculate
the following using Cost/Volume profit (CVP) principles:
• The total fixed costs. 7
• Break even units. 3
• Break even value 3
• Margin of safety value. 2
• Margin of safety ratio. 2
Total 21
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HW 2
(12 marks; 18 minutes)
Mr. Geyser Ltd manufactures geysers for residential and commercial buildings. Mr.
Geyser recently introduced a new type of energy efficient geyser, with the following cost
information:
(R) per unit
Selling price 3 000
Direct materials and components 850
Direct labour (variable) 520
Manufacturing overheads (fixed and variable) 680
Variable selling expenses 100
Fixed selling expenses 250
The current estimated sales and production for the period is 150 geysers. If 200 geysers
are sold, the manufacturing overheads per unit will amount to R555.
REQUIRED:
a. Calculate the break-even point in units (8)

b. The directors are considering a new selling price of R2 800 per geyser. The change
in selling price will not result in any other changes to the cost structure. Calculate
how many additional units Mr. Geyser will have to sell in order to break even if the
new selling price is implemented. (4)
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HW 3
(11 marks; 16.5 minutes)
Food Zone Ltd prepares and sells burgers to the public. The following budgeted
information was made available to you for the month of September 2018:
Sales price per burger R35.00
Variable manufacturing cost per burger R7.50
Delivery cost per burger sold R2.50
Total manufacturing fixed costs R13 000
Total non-manufacturing fixed costs R8 000
Total expected sales value R35 000
REQUIRED: Marks
(a) Calculate the following for the month of September 2018 based on
the budgeted information provided :
3
(i) Contribution per unit 2
(ii) Breakeven point in units 1
(iii) Breakeven value 2
(iv) Margin of safety ratio 3
(v) The number of burgers that Food Zone has to sell to make
a profit of R20 000.
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HW 4
Nescoffee (Pty) Ltd is concerned that one of its products is losing interest from the public,
more specifically, the hazelnut flavour. They would like to know how much of their total
costs and expenses are variable so that they can try and reduce them to acceptable
levels, in order to improve profitability. The company is also interested in knowing its
break-even sales with a view to determining its margin of safety. Currently the demand
for a sachet of hazelnut coffee is at 60 000 sachets. The hazelnut coffee sells at R6 per
sachet.
The following information is available in respect of the Nescoffee Company for the four
quarters of 2018:
Sales (Units) Total Cost
1st quarter 46 800 R287 200
2nd quarter 31 200 R224 800
3rd quarter 47 840 R291 360
4th quarter 43 680 R274 720
REQUIRED: Marks
(a) Calculate the following:
(vi) Variable Cost & Fixed Costs 5

(vii) Break-even point in units and value 3
(viii) Margin of safety ratio 2
(b) Explain the assumptions of the Cost-volume-profit analysis. 2
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HW 5
(7 marks; 10,5 minutes)
Sleek Shoes Pty Ltd (“SS) is concerned that one of its products is losing its appeal to its
customers. The product in question, the ladies rose gold sneaker, is mainly sold in the
local market and has always been very popular with their female customers. A pair of
these rose gold ladies sneakers sells for R150.
Production and selling costs per pair for this specific range are as follows:
Direct material cost R23

Direct labour cost R18
Variable manufacturing overheads cost R14
Variable selling and administration overheads cost R10
Total fixed manufacturing overhead cost R268 000

Total fixed selling and administration overhead cost R157 000
Total expected sales value R1 440 000
Taxation rate 30%
REQUIRED: Marks
(a) Calculate the contribution per pair of sneakers and break-even value 4
(Rands).
(b) Calculate the number of pairs of sneakers to be sold to achieve net 3

income after tax of R 150 000.
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HW 6
Great Escape (GE) Ltd specialise in hiking equipment and manufactures a waterproof
backpack that sells for R220. The company manufactured and sold 15 500 backpacks
during the month. The following additional information, for this activity level, is available:
Total direct material cost R379 750

Direct labour cost per hour R12
Direct labour hours needed per product 2.5
Total variable manufacturing overheads R217 000

Sales commission (of the selling price) 5%
Other fixed costs in total R320 000
REQUIRED Marks
(b) Calculate the current break-even units for G.E as well as the margin
3
of safety.
(c) The workers at G.E.’s factory have threatened to strike if they do not
receive an increase in wages of 20% per hour. The sales department
want a commission of 6%. The only supplier of the direct material has
increased by the cost by 10% per unit. Fixed manufacturing costs
have increased with 12% due to the increase in electricity prices. All 8
other factors remain the same as the current month.
What influence will these actions have on the break-even units of G.E.
Ltd?
Total for question 1 (See Direct and Absorption costing for the rest of this question) 16
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LEARNING UNIT 6: BUDGETING
1. UNIT OVERVIEW
Budgeting is an important tool an entity can use for planning and controlling activities. It assists
managers in allocating resources (planning), it can be used to identify were any deviations took
place (control) and then managers can take any corrective action if needed.
There are eight steps in the budgeting process that should be followed when preparing a budget.
Both financial and non-financial aspects must be taken into account in the budgeting process.
Budgets span from sales forecast to production and overhead budgets, but most critical is the
ability of a budget to be flexed to accommodate any changes in expected sales volumes.
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Budgeting
Budget Budget Flexible

period budget
• A plan that shows an
• The length of • Budget prepared
estimate of income
time for which a using actual
and expenses for a
budget is volumes, but
period of time
prepared budgeted costs
• Used to compare
to actual results
Functional Participative
budgeting
budget
Incremental
budgeting • Process where all
• A budget for a
the departments in
specific aspect in the
• When the budget of the company set
company
the previous period is their own budgets
• Small portion of the
master budget used and small
adjustments are made
for expected inflation
Zero-based
budgeting
Rolling
Master budget
budget
• Budget has to be
• A summary of all • Budget where an prepared from
the functional extra period is scratch every time
budgets together added as soon as • Need justification for
• Follows the same the past period all expenses
“format” as a can be deleted
direct or
absorption costing
statement
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Learning Outcomes • Define what a budget is

• Explain the reasons why organisations prepare
budgets
• Prepare a master budget
• Prepare a cash budget
• Define the other types of budgets
• Understand how budgets are used in an organisation
• Explain what a flexible budget is
Budgeting consists of specific preparation material and content material that will assist each
student in understanding the key concepts of this unit. It is the responsibility of each student to
ensure that he/she familiarises him/herself with unit-specific study material.
It is not necessary to study the format of each type of budget. Rather understand the purpose of
the budget. This will make it easier to answer any question about any budget.
It is however still important for you to be able to draw up ANY budget.
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application

principles

principles
1. What is the purpose of a budget?

2. Do I know the steps of the budgeting process?
3. Can I prepare all the budgets?
4. Do I understand the purpose of each budget?
5. Do I understand how a flexed budget work and when I am supposed to use it?
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6. HOMEWORK
HW 1 Budgeting objectives, production budget and

budget profit
HW 2 Cash budget and reasons for preparing budgets
HW 3 Cash budget and computer budgeting
HW 4 Cash budget and reasons for preparing budgets
HW 5 Flexed budget and budgeting process
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Student notes on Budgeting
1. What is a budget?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
2. What are the important roles of a budget?
Planning …………………………………………………………………………………………...
Control ……………………………………………………………………………………………..
3. Why should you plan and control activities/funds?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
4. What can budgets help to achieve?
Co-ordination ……………………………………………………………………………………..
Communication …………………………………………………………………….……………..
Motivation …………………………………………………………………………………………
Evaluation …………………………………………………………………………………………
5. What are the different forms of planning?
Strategic planning ………………………………………………………………………….........
Budgetary planning ………………………………………………………………………………
Operational planning ……………………………………………………………………………
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6. What does the budgeting process entail?
Communication ………………………………………………………………………….………
Limiting factor ……………………………………………………………………………….……
Preparing sales budget

………………………………………………………………..…………
Preparing other budgets

…………………………………………………………………………
Negotiation ………………………………………………………………………………………..
Co-ordinate and review

…………………………………………………………………..………
Final acceptance
………………………………………………………………………….………
On-going review
………………………………………………………………………..…………
7. Other budgeting terms
Budget period – period for which the budget is prepared
Budget committee – people who prepares and reviews the budgets
Budget manual – provide info on the budgeting process
8. Different budgeting approaches
Participative budgeting ………………………………………………………………………….
Rolling budgets …………………………………………………………………………………..
Incremental budgeting …………………………………………………………………………..
Zero-based budgeting
……………………………………………………………………………
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9. What is budgetary control?
Evaluating the budget by comparing actual results to budgeted results
Should be:
i. Timely
ii. Accurate
iii. Relevant
iv. Communicated
10. What is the difference between a flexed budget and a fixed budget?
Fixed ……………………………………………………………………………………..
Flexed ……………………………………………………………………………………
11. Additional notes
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HW 1
(17 Marks; 25.5 minutes)
Treadwell (Pty) Ltd (Treadwell) is a company that manufactures motor vehicle tires.
The following information relates to the production and sales of Treadwell for the year
ended 28 February 2017:
1. The raw materials costs for the previous year was R 15 000 000 when Treadwell
produced 40 000 tires.
2. They also incurred direct labour costs of R 9 900 000 of which R 8 100 000 was
for normal labour hours and the remainder for overtime. Without overtime
Treadwell would only have been able to produce 36 000 tires. Overtime is paid at
double the normal rate as a motivation for employees since they cannot force their
employees to work overtime. Treadwell will be unable to increase their normal hour
capacity in the following year and will have to rely on overtime should they require
more labour hours.
3. The variable manufacturing overheads amounted to R 190 per tire while the fixed
manufacturing overheads amounted to R 5 000 000.
4. Administration costs incurred of R 5 000 000 was fixed in nature. Treadwell pays
its sales consultants 5% commission on the selling price of all tyres. The actual
sales for the year was 40 000 tires. Tires were sold for R 1 200 per tyre.
The following changes are expected to occur in the year ending 28 February 2018:
1. Expected sales for the year is 42 000 units. The selling price is expected to
increase by 5%.
2. The cost of raw material is expected to increase with 10% while the wages for
employees will remain the same.
3. All fixed costs are expected to increase with 7% which would be in-line with the
inflation rate.
4. Treadwell plans to have 2 500 tires in closing inventory. Treadwell applies the
variable costing system using the weighted average method to value inventory.
REQUIRED: Marks
(a) What is the two main objectives of budgeting? 2
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(b) Perform a Production budget for the year ending 28 February 3
2018.
(c) Calculate the budgeted profit for the year ending 28 February 12
2018.
Total 17
HW 2
(15 marks; 22,5 minutes)
Quail Ltd. is a retail distributor of computer hardware, related software and support
services. The management accountant has prepared sales budgets for the first semester
of 2017. These are presented below:
Month Total Sales (R)

January 550 000
February 500 000
March 480 000
April 400 000
May 425 000
June 600 000
July 620 000
Cash sales amount to 25% of the total sales. Collections of the credit sales are as follows:
• 40% in the month of sale and is subject to a 4% discount.
• 30% one month after the month of sale
• 28% two months after the month of sale and
• the remainder is uncollectible.
Quail Ltd.’s inventory requirements are equal to 30% of the next month’s sales. The
purchases’ terms of payment require a down payment of 45% and the balance is payable
in the following month.
Other expected expenses for May 2017 include the following:

Selling and marketing costs (Note 1) R3 500
Depreciation R15 000
Loss on sale of computer equipment (Note 2) R5 000
Purchase price of new computer equipment (Note 2) R50 000
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Note 1
Selling and marketing costs are paid in cash in the month it is incurred.
Note 2
Quail Ltd plans on replacing the office computer equipment that is used for general
administration of the business (i.e. not inventory) during May 2017. The financial
accountant’s calculations indicate a loss on the replacement of R5 000. Quail Ltd will have
to pay a 50% cash deposit on the last day of May 2017 and the balance in June 2017.
Note 3
The closing balance of bank as on 31 December 2016 amounted to an overdraft of
R150 000.
REQUIRED: Marks
(a) Prepare a cash budget for Quail Ltd for May 2017. Show all your 12
calculations and clearly indicate the exclusion of any amounts (if
applicable).
(b) Name three reasons for preparing budgets. 3
Total 15
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HW 3
S & P Limited (“S&P”) is a company based in Harrismith that manufactures steel pipes
used mainly by the construction industry. The management accountant has prepared the
sales budgets for the first 6 months of 2019 and these are presented to you below:
Month Total sales

January R750 000
February R600 000
March R430 000
April R700 000
May R625 000
June R550 000
Cash sales amount to 40% of the total sales. Collections of the credit sales are expected
to be as follows:
• 50% in the month of the sale and these are subject to a 5% discount
• 30% one month after the month of the sale
• 15% two months after the month of the sale and
• the remainder is considered uncollectible and is written off as bad debt.
S&P’s inventory requirements are equal to 40% of the next months’ sales value. July’s
total sales are expected to be R780 000. The purchases’ terms of payment require a
down payment (deposit) of 50% with the balance being payable 30 days thereafter. S&P
had a bank overdraft of R 220 000 on 1 May 2019.
REQUIRED: Marks
(a) Prepare a cash budget for S&P Limited for the months of May and 15
June 2019.
(b) Provide three benefits of a computer budget system. 3
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HW 4:
The directors of Eniko Co (“Eniko”) are very concerned with the negative cash balance
that has become a regular occurrence in the company. They commissioned you, an
expert in cash budgets, to compile a cash budget for the coming months, i.e. October and
November.
The following information is provided:
August September October

Sales R150 000 R175 000 R170 000
Material purchases R54 000 R60 000 R72 000
Rent expense R15 000 R15 000 R16 000
Other expenses R90 000 R95 000 R97 000
Other expenses include a depreciation charge of R10 000 per month.
Historical records indicate the following for sales:

• Cash amounts to 10% of total sales
• Credit sales amounts to 90% of total sales; of which:
o 60% pay one month after sale
o 35% pay two months after the sale
o 5% is classified as bad debts
Similar statistics for material purchase payments:

• Payments are in cash for 20% of purchases
• All credit payments are made one month after the purchase
•
The cash balance on 1 October was R6 500 unfavourable.
REQUIRED: Marks
(a) Prepare a cash budget for Eniko for the month of October 2019. 9
(b) Name three reasons for preparing budgets 3
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HW 5
Healthy Drinks Ltd produces a variety of cold drinks and juices. They recently launched
a new product for toddlers, with the focus on healthier options for kids. Management
asked you to report on the results for the newly launched product based on the past
period’s budgets.
The following information is available:
Budget Actual
Units manufactured and sold: 20 000 23 000
R R
Direct materials R22 400 R24 800
Direct labour R16 800 R16 500
Production overheads R26 000 R27 100
Administrative expenses R12 000 R12 200
Selling and distribution expenses R11 200 R10 800
Total cost R88 400 R91 400
Management indicated that only administrative expenses are fixed. Production overheads
and selling and distribution expenses are mixed costs. 40% of the selling and distribution
costs are considered fixed and the remainder are variable.
Information from the previous financial period was as follows:
Units manufactured and sold 18 000

Production overheads R25 000
REQUIRED Marks
(a) Prepare a flexed budget for Healthy Drinks Ltd. 8

(b) What are the eight (8) steps that need to be followed in the process
4
of preparing a budget?
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LEARNING UNIT 7: PROCESS COSTING
1. UNIT OVERVIEW
Two general costing methods are applied in Cost and Management Accounting, namely:
• Process costing; and

• Job costing
The method used, depends on the nature of the products being manufactured.
When an entity manufactures identical products that goes through an identical process and have
identical usage of resources, a process costing system is used to cost the inventory items. It can
therefore be seen as a system that leads to mass production of similar items.
As seen in Chapter 3, inventory can be costed according to the First-In-First-Out or Weighted

Average method. These methods will impact the cost per unit in a process costing system since
it takes different costs into account, and output for each method is calculated differently.
Another aspect of process costing is the normal losses that can occur. Normal losses form part
of the process and cannot be eliminated and is therefore unavoidable. The best example of a
normal loss is losses due to evaporation. Normal losses occur at an inspection point since it will
not be cost effective to go and look for errors in your process the whole time.
It can sometimes happen that the units in your process is not fully complete. These units still
incurred a cost and therefore they should be taken into account when costing your items. An
equivalent unit schedule is used to calculate the number of “complete” units that went through
your process.
The last aspect of process costing is drawing up a cost report where you calculate the cost of
each equivalent unit and allocate that cost to each line item. This is an important step as the
purpose of process costing is to value inventory. It is therefore necessary to value the units that
was in your process in the current year to ensure you have an accurate reflection of the value of
inventory on your financial statements.
99 | P a g e
Process Costing
Equivalent units Normal loss Cost report
• Shows the cost per

• Measurement used • Losses that are equivalent unit as
to show how far a inherent in the well as the allocation
unit is completed manufacturing of costs to the
• Two half units = 1 full process different line items
unit • Unavoidable
• Part of the process
100 | P a g e
Learning Outcomes • Identify the basic characteristics of a process

costing system
• Comparison of process costing with job costing
• Explain and calculate equivalent units
• Calculate the value of work in progress, using the
FIFO and weighted average methods
• Draft a process cost report
• Calculate normal losses
Exclude the following • Previous process

• Abnormal losses
• Short-cut method in process costing
• The process account and related entries
The Process costing learning unit consists of specific preparation and content material that will
assist each student in understanding the key concepts of this unit. It is the responsibility of each
student to ensure that he/she familiarises him/herself with unit-specific study material.
101 | P a g e
Process costing can be answered by following these steps:

1) Drawing a timeline
2) Constructing a work-in-progress T-account in units
3) Calculating the normal loss
4) Drawing up the equivalent unit schedule
5) Drawing up the cost report
6) Answering the question (normally a WIP T-account)
Concepts, calculations and Online learning environment, homework questions

application

principles

principles
1. When would a company use a process costing system?

2. Where does a normal loss occur?
3. What is an equivalent unit schedule and what is the purpose of this schedule?
4. What is the purpose of the cost report?
5. How will FIFO or weighted average inventory valuation influence my process?
102 | P a g e
6. HOMEWORK
HW 1 Scenario Opening balance before inspection point
HW 2 Scenario Opening balance after inspection point
HW 3 Scenario No opening balance
HW 4 Scenario No closing balance
HW 5 Scenario No information for normal loss
HW 6 Opening balance before inspection point
HW 7 Opening balance before inspection point
HW 8 No information for normal loss
103 | P a g e
Student notes on Process Costing
1. When do we use a process costing system?

a. Similar products
b. Large quantities
Examples:
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
2. What are the steps to follow when you have a process costing question?
a. Draw a timeline
b. Work-in-progress account in units
c. Calculate any normal loss
d. Equivalent unit schedule
e. Cost report
f. Answer the question (WIP Rand account)
Step 1: Draw a timeline
Why do we do this?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Use the following information to complete the timeline:
Opening balance 5 000 units 60% complete
Input 17 000 units
Closing balance 3 000 units 30% complete
Inspection point 75%
Normal loss 5%
104 | P a g e
Step 2: Work-in-progress account in units
Why do we do this?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Use the information in step 1 to complete the following T-account:
Work-in-progress in units
Step 3: Calculate any normal loss
Why do we do this?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
When does this normal loss occur?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
How do I calculate the normal loss?
a. The normal loss is based on the units that was inspected in the current period
b. Look at your timeline
c. Opening inventory …………………………………………………………………
d. Current period input ……………………………………………………………….
e. Closing inventory ………………………………………………………………….
105 | P a g e
Use the information in step 1 and 2 to calculate the normal loss:
Opening balance
+ Input
- Closing balance
= Units inspected
Normal loss ( %)
Step 4: Equivalent unit schedule
Why do we do this?
Are all the units completed at the same point? (Look at your timeline)
Will it be fair to value a unit that is 50% complete at the full cost price of a full unit?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
How does it work?
Take the number of units in your WIP unit account and multiply with the % on your timeline
………………………………………………………………………………………………………
………………………………………………………………………………………………………
What must I remember?
How my production process works (i.e. where do I add material, how do I incur conversion
costs)
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Use the information in steps 1 – 3 and below to complete the following equivalent unit
schedule:
Material Added at the beginning of the process
Labour Incurred evenly in the production process
Overheads Incurred evenly in the production process
(Labour cost + Overheads = Conversion costs)
106 | P a g e
Material Conversion
Total
% Units % Units
Opening
balance
Started and
completed
Normal loss
Closing
balance
Step 5: Draw a cost report
5.1 Cost per equivalent unit
Why do we do this?
Calculate the value of each equivalent unit
………………………………………………………………………………………………………
………………………………………………………………………………………………………
How does it work?
Costs incurred / Equivalent units for that cost (step 4)
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Use the information above and below and complete the first part of the cost report:
Material costs R250 000
Conversion costs R375 000
Total Material Conversion

Costs 250 000 375 000
Equivalent
units
107 | P a g e
5.2 Allocation of costs to line items
Why do we do this?
To calculate the value of each line item
………………………………………………………………………………………………………
………………………………………………………………………………………………………
How does it work?
Cost per equivalent unit (Step 5.1) x Equivalent units (Step 4)
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Use the information above and complete the second part of the cost report
Material Conversion
Finished goods:
Opening balance
Opening balance
completed
Started and completed
Normal loss
Closing balance
Step 6: Answer the question
Can be any of the following (just examples):
- Work-in-progress T-account (Rands)

- Value of a specific inventory line item
Why do we do this?
108 | P a g e
………………………………………………………………………………………………………
………………………………………………………………………………………………...……
3. What if there was previous period costs?
It affects the value of my opening inventory
Depends on the inventory system I am using
………………………………………………………………………………………………………
……………………………………………………………………………………………………...
.
4. What type of inventory system do I use?
What does the question tell you?
FIFO system:
Value inventory according to current period cost
The costs incurred in the previous period only relates to OPENING inventory
………………………………………………………………………………………………………
………………………………………………………………………………………….................
Use the same information as above, as well as the additional information below, to
determine the value of finished goods and closing inventory balance:
Costs related to opening inventory:
Material R50 000
Conversion R65 000
Weighted Average system:
Costs are averaged for the period
Includes the costs incurred in the previous period
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Use the same information as for FIFO and determine the value of finished goods and
closing inventory balance
109 | P a g e
5. Process costing accounts
Raw material
Direct labour
Overheads
Work-in-progress
Finished goods
6. Additional notes
110 | P a g e
HW 1: Opening balance before inspection point
Opening work-in-progress: 10 000 units (40% complete)

Input for current period: 150 000 units
Closing work-in-progress: 7 500 units (45% complete)
Inspection point is at 60%.

Normal loss is 5%.
Material is added at the beginning of the process and conversion costs are incurred
evenly throughout the process.
Previous period costs:

Material R25 000
Conversion R82 375
Current period costs:

Material R75 000
Conversion R289 500
Required:
Using FIFO:
1. Calculate the normal loss
2. Prepare the equivalent unit schedule
3. Prepare the cost report
4. Prepare the work-in-progress account for the period
Using Weighted Average:

111 | P a g e
HW 2: Opening balance after inspection point


Normal loss is 10%.

Material R30 000
Conversion R85 000

Material R120 000
Conversion R300 000
Required:
Using FIFO:

112 | P a g e
HW 3: No opening balance


Normal loss is 5%.

Material R120 000
Conversion R300 000
Required:
Using FIFO:

113 | P a g e
HW 4: No closing balance


Normal loss is 5%.

Material R75 000
Conversion R150 000

Material R130 000
Conversion R275 000
Required:
Using FIFO:
114 | P a g e
HW 5: No information for normal loss

Closing balance: 30 000 units (10% complete)
Units transferred to finished goods: 90 000 units

Material R20 000
Conversion R80 000

Material R160 000
Conversion R250 000
Required:
Using FIFO:

115 | P a g e
HW 6:
WMF Ltd (“WMF”) manufactures a single model of a commercial steel cabinet.
The following information relates to Process 1 for May 2019:
Production data: Units

Opening work-in-progress (30% completed) 12 000
Input for current period 24 000
Closing work-in-progress (50% completed) 15 000
Cost data: R
Opening WIP: Material 48 000
Conversion costs 20 000
Cost for May 2019: Material 96 000
The company makes use of the weighted-average method for valuing inventory.
Management estimates normal losses to be 10% of completed units. The inspection point
is at 60%.
REQUIRED: Marks
(a) Calculate the normal loss. 3
(b) Prepare the equivalent unit schedule for WMF Ltd for the month of 6
May 2019.
(c) Prepare a cost report for WMF Ltd for the month of May 2019. 11
20
116 | P a g e
HW 7:
Fruit Ways Ltd (“FW”) manufactures a specific fruit juice blend.
The following information relates to Process 1 for September 2019:

Cost data: R
Cost for September 2019: Material 130 000
The company makes use of the FIFO method for valuing inventory. Management
estimates normal losses to be 5% of inspected units. The inspection point is at 70%.
REQUIRED: Marks
(b) Prepare the equivalent unit schedule for FW Ltd for the month of 7
September 2019.
(c) Prepare a cost report for FW Ltd for the month of September 2019, 12
clearly showing the value of finished goods.
117 | P a g e
HW 8:
(17 marks; 25.5 minutes)
Stellenbosch Winery produces red wine per bottle and very popular in the Western Cape
area.
The following information relates to Process 1 for September 2019:

Units transferred to finished goods 50 000
Cost data: R
Costs for September 2019: Material 140 000
The company makes use of the weighted-average method for valuing inventory and the
inspection point is at 80%.
REQUIRED: Marks

(b) Prepare the equivalent unit schedule for the Winery for the month of 4
September 2019.
(c) Prepare a cost report for the Winery for the month of September 11
2019.
118 | P a g e
LEARNING UNIT 8: JOB COSTING
1. UNIT OVERVIEW
As mentioned in the process costing unit guide, a company can apply two methods for inventory
valuation purposes. The focus of this unit is job costing.
Job costing differs from process costing in the sense that every job is made according to the
client’s specifications. This means that every job will be different, whereas in a process costing
system, all the units go through the same process and end up looking the same.
In process costing, costs are accumulated per department and then allocated to the products. Job
costing accumulates costs per job and therefore the costs of the specific job will only be allocated
to that job.
The costs of a job, is recorded onto a job card. This makes it easy to calculate the total costs of
the specific job. The total cost of a job is equal to the sum of direct materials, direct labour and
allocated manufacturing overheads.
119 | P a g e
Job Costing
Over- / under-
Job card
recovery
• Used to record all

manufacturing • Allocated
expenses for a overheads differs
specific job from the actual
overheads
• Follows the same
principles as
Chapter 5
120 | P a g e
Learning Outcomes • Explain what is meant by a job costing system and a

batch costing system
• Understand the flow of costs and documents in a
manufacturing facility
• Calculate the total cost of a specific job
• Add a mark-up percentage and derive a selling price
• Understand how to account for over- and under-
allocated overheads
Job costing consists of specific preparation material and content material that will assist each
student in understanding the key concepts of this unit. It is the responsibility of each student to
ensure that he/she familiarises him/herself with unit-specific study material.
Job costing forms a very small part of the module, but it is still important to understand the
principles contained in this chapter. The comparison between job costing and process costing is
also important as it highlights the differences between these two systems and shows when it is
appropriate to use each of the systems.
121 | P a g e
Concepts, calculations and Online learning environment, homework questions

application

principles

principles
1. What are the main differences between process costing and job costing?
2. When is it appropriate to use a job costing system?
3. Can I journalise transactions for a job costing system?
6. HOMEWORK
Review Questions 6.1 – 6.8 Prescribed textbook
Exercise Questions 6.7, 6.9 and 6.12 Prescribed textbook
HW 1 Cost of each job
122 | P a g e
Student notes on Job Costing
1. What is job costing?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
2. When do I use a job costing system?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
3. What is a job card?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
4. What are the differences between a job costing system and a process
costing system?
Job Costing Process Costing
Specifications
Takes place
How does the products

look
123 | P a g e
How are costs collected
Where are costs

accumulated
5. What are the requirements for a job costing system to function properly?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
6. Additional notes
124 | P a g e
HW 1:
Company JAC is a manufacturing company that specialises in the manufacture of high-

end leather furniture. This furniture is manufactured according to each client’s
specifications.
You have been asked to calculate a selling price for two jobs: Job J1 and Job J2.
The manufacturing department’s budgeted costs for the current month is:
Direct materials R190 000
Direct labour R140 000
Direct labour hours 12 000
Production overheads R76 000
The company adds a mark up of 50% to each Job.
Details for Details for

Job J1: Job J2:
Direct materials R13 500 R24 800
Direct labour R4 800 R6 700
Direct labour hours 102 1000
Production overheads (actual) R3 000 R6 000
REQUIRED Marks
(a) Calculate the price that should be charged for Job J1 using direct
4
labour cost to calculate the predetermined overhead rate.
(b) Calculate the price that should be charged for Job J2 using direct
4
labour hours to calculate the predetermined overhead rate.
125 | P a g e

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EMAC2624

Table 1: Icon Library ............................................................................................................... 5

Welcoming message and lecturer information

Action words, terms and concepts that need to be understood

Prerequisites of the module

Face-to-face contact sessions

Activities to be completed individually (preparation). You may still ask for

Unit-specific study material for the module

Resources to be consulted (such as the textbook, additional reading

An indication of an important reminder/caution from your lecturer

Assessment questions and opportunities

Assessment criteria for the module

Learning unit overview for a specific unit

CONTACT DETAILS OF LECTURERS

Lecturer: Lemlem Amhatsion

Office number: School of Accountancy – Bloemfontein Campus

Email address: AmhatsionLG@ufs.ac.za

Phone number: 051 401 2550

Consulting hours: Available on BlackBoard

Lecturer: Marné Van Niekerk

Office number: School of Accountancy – QwaQwa Campus

Email address: VanNiekerkMM@ufs.ac.za

Phone number: 058 401 5078

Consulting hours: Available on BlackBoard

appointments (24-hour notice).

Name: Leandra Rykaart

Office number: 141 Stef Coetzee Building

Email address: allenl@ufs.ac.za

Phone number: (051) 401 2462

Name: Sipho Nguni

Office number: School of Accountancy – Bloemfontein Campus

Email address: NguniSG@ufs.ac.za

Phone number: 058 401 3945

Consulting hours: Face-to-face and blackboard

COMMUNICATION & APPOINTMENTS

Announcements will be made under “Announcements” on Blackboard. The announcement will

Handing in and marking of homework

HOMEWORK NOT HANDED IN DURING CLASS WILL NOT BE ACCEPTED AT A LATER

• The prescribed textbook in this module is Cost and Management Accounting:

The following gives an indication of the duration of the main tests:

Minimum module mark for admission to the examination

Assessment of working students

ARRANGEMENTS REGARDING TESTS

REMARKS: Hand out of test scripts

You may not copy assignments from a fellow student!

In the policy, plagiarism is defined as follows:

Plagiarism is distinguished from forms of academic writing misconduct such as:

APPEAL PROCEDURES AND HANDLING OF ACADEMIC ISSUES

4.1. ASSESSMENT BREAKDOWN

Your module mark (predicate) will be calculated as follows:

ASSESSMENT TYPE (E.G. CONTRIBUTION TO MODULE

4.2. CALCULATION OF THE FINAL MARK

The final mark of this module is calculated as follows:

Handing in and marking of homework

Do not provide a photo / screenshot of internet connection or any other

Please consult the faculty yearbook for more information.

6. UPDATING OF MODULE INFORMATION AND RESOURCES

Blackboard is the main form of communication for EMAC2624. If you

School of Accountancy: University of the Free State – Code of Conduct

Teaching philosophy for the School of Accountancy

After successful completion of this module, you should be able to:

• Understand the nature and purpose of cost and management accounting.

Learning unit 1: The Context of Management Accounting