FACULTY/COLLEGE College of Business and Economics

SCHOOL School of Accounting

DEPARTMENT Commercial Accounting
CAMPUS(ES) SWC
MODULE NAME Cost & Financial Management 3A
MODULE CODE CFM33A3
SEMESTER First
ASSESSMENT OPPORTUNITY, Assessment Opportunity 2
MONTH AND YEAR 29 April 2019

ASSESSMENT DATE 29 April 2019 SESSION 15:00 – 16:30

ASSESSOR(S) M Janse van Rensburg, L Joubert, K Matshego
MODERATOR(S) L Boyce
DURATION 1½ hours (90 min) TOTAL MARKS 50

NUMBER OF PAGES OF QUESTION PAPER (Including cover page) 5

INFORMATION / INSTRUCTIONS:
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 Please answer Question 1 in the GREEN BOOK, Question 2 in the ORANGE BOOK
AND Question 3 in the BLUE BOOK.
 Clearly indicate the group that you attend as well as the class list number (next to
your name on the attendance register) next to the UJ logo on your script.
 This is a closed-book assessment.
 Silent, non-programmable calculators may be used.
 Where applicable, round all calculations to two decimals, unless stipulated otherwise.
 Read the questions carefully and answer only what is required.
 Number your answers clearly and correctly as per the question paper.
 Write neatly and legibly on both sides of the paper in the answer book, starting on the
first page.
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QUESTION 1 [17 MARKS]

MNT Ltd (“MNT”) is a telecommunications company and sells a range of services and
products. The following actual information relate to the cell phone contracts and pay-as-you-
go services offered to their customers for the year ended 30 April 2019:

 Pay-as-you-go customers were on average 10 000 per month and each customer
purchased data and airtime at an average price of R220 per month.
 Contract customers were on average 8 000 per month, with each customer paying
R300 on average per month.
 MNT employs about 200 employees which are specifically dedicated to handle
contract and pay-as-you-go customers. 10% of the employees are call center agents
who receive a 5% commission (based on the rate each contract customer paid) over
and above their normal salary. The commission is earned based on the number of
successful contract customer queries the call center agents handled. For the period
under review 3 cases of contract customers per agent was successfully handled per
month.
 The average normal monthly salary was R20 000 per employee.
 Promotions are held to recruit more customers. UJ students are normally used for the
promotions, and were paid R50 per customer recruited. For the year ended 30 April
2019, a total of 1 500 customers (both contract and pay-as-you-go customers) were
recruited and is included in the average number of customers mentioned above.
 In order to maintain its license with the Independent Communications Authority of
South Africa (ICASA), MNT paid a once-off annual renewal fee of R75 per customer.

For the year ended 30 April 2019 the MNT’s budget had indicated the following:

 Pay-as-you-go customers were estimated at 10% more than the actual number of
customers evidenced, with each customer paying R200 per month.
 Contract customers were estimated to be 9 500 per month, with each customer
estimated to pay 8% more than what was actually paid.
 The commission for the call center agents was budgeted at 3%, with 5 cases for
contract customers per agent being anticipated to be handled successfully per
month.
 The budgeted average monthly salary was R21 000 per employee.
 It was budgeted that UJ students would recruit 1 800 customers (both contract and
pay-as-you-go customers) and would be paid R45 per customer recruited.

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 The annual renewal of the ICASA license was budgeted to be R82 per customer.

REQUIRED

1.1 Prepare the flexible budget of MNT for the year ended 30 April 2019
and calculate the flexible budget variances. Clearly indicate whether the
variances are favourable or unfavourable. (17)

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QUESTION 2 [21 MARKS]

KuzoBaLit (Pty) Ltd (“KuzoBaLit”) manufactures large winter blankets and uses an
absorption costing system. Each blanket is anticipated to be sold for R550 per blanket. The
following information relates to the acrylic yarn (the material used to manufacture the
blankets), variable and fixed manufacturing overheads, and direct labour for the period
ended 31 May 2019:

 It was budgeted that each blanket would use 2 400 grams of acrylic yarn and that
R125 would be paid per kilogram (kg).
 For the period under review, it was discovered that 1.9 kg of acrylic yarn was actually
used to produce a blanket and the total kilograms were purchased at a total cost of
R531 696.
 Variable manufacturing overheads are absorbed using machine hours. It is estimated
that each blanket requires 2 hours 33 minutes to be produced at a rate of R22 per
machine hour. For the period under review, the production schedule revealed that 2
hours 45 minutes was used to produce a blanket and R23.50 was incurred for each
machine hour.
 Annual budgeted fixed manufacturing overheads was forecasted at R33 per blanket
at full capacity of 2 500 blankets. KuzoBaLit ended up paying R81 900 for the period
concerned.
 It was initially budgeted that 2 240 blankets would be produced and sold. However,
the actual production and sales were 120 blankets less than what was originally
budgeted for.
 Direct labour efficiency variance amounted to a favourable variance of R5 200.
Actual direct labour hours worked amounted to 4 900 hours at a rate of R15 per
labour hour. It was budgeted that R13 per labour hour would be paid.

REQUIRED

2.1 Calculate all relevant variances for the acrylic yarn (material), variable
and fixed manufacturing overheads. (1 000 gram = 1 kg). The
expenditure and volume variances are required for fixed manufacturing
overheads. (13)

2.2 Provide reasons for the acrylic yarn price variance and the variable
manufacturing overheads expenditure variance. (2)

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2.3 Calculate the standard direct labour hours per blanket. (6)

QUESTION 3 [12 MARKS]

Buff Ltd (“Buff”) manufactures gym supplements and uses a variable costing system. One of
their most consumed supplements is the Hardcore Whey Supplement (“HWS”). The financial
information for the year ended 30 June 2019 showed an actual profit of R230 000.

Buff anticipated to produce and sell 5 000 bottles of HWS, but exceed expectations and
produced and sold 20% more than what was budgeted. A bottle of HWS was budgeted to be
sold for R150, however it was actually sold for R125 per bottle. Standard margin is used to
calculate the sales volume variance.

The main ingredients used in HWS yielded an unfavourable price of R34 000 and a
favourable quantity variance of R22 500. The main ingredients actually costs R11.50 per kg,
while its budgeted price was reflect at 75 cents less than the actual price. Each bottle
requires 1.2 kg of the main ingredient.

Direct labour per hour is anticipated to be paid at R26 per hour with 1 hour 15 minutes
anticipated to be used to produce a bottle of HWS. For the year ended Buff paid a total
amount of R216 000 for total direct labour hours and 1 hour 30 minutes was actually spent
to produce one bottle of HWS.

Variable manufacturing overheads yielded an favourable expenditure variance of R22 600

and unfavourable efficiency variance of R28 400. Variable manufacturing overheads are
absorbed using direct labour hours. It is anticipated that 45 minutes is used to produce one
bottle at an allocation rate of R26 per hour.

REQUIRED

3.1 Reconcile the budgeted profit to the actual profit for the Hardcore Whey
Supplement. Clearly indicate which amounts are added or subtracted
from the actual profit. Round your calculations to the nearest rand,
where applicable. (12)

[Paper total = 50 marks]