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Faculty of Economic and Management Sciences
Department of Financial Management
Financial Management 200 (FBS 200)
Date:
18 November 2011
Total marks: 120 Marks
Duration:
180 Minutes
Date of perusal:
Monday 29 November 2011 [09h00 – 11h00]
HSB 3 - 23
Internal examiners:
Mr F Blom
Mr FJ de Hart
Ms L Erasmus
External examiner:
Ms Y Erasmus
Instructions:

Answer all the questions.

The question paper consists of 11 pages (excluding the cover page).

You are not allowed to bring any teaching materials or notes into the examination venue.

You are allowed to do your rough work on the examination paper and may take the paper with
you when you leave the venue at the end of the examination session.
SUGGESTED SOLUTION
Important information
1. The results of examinations and supplementary examinations for first year students only will be
displayed on the notice-boards next to the Human Sciences Building.
The results for first, second and third year, as well as postgraduate students will be available on the
MTN line and Students Online (SOS). Results will be mailed as soon as possible to candidates
after the examination period. Results will be available at telephone nr. 083 123 1111, as well as on
the Intranet address: http://www.up.ac.za, students online.
LECTURERS AND ADMINISTRATIVE STAFF WILL NOT GIVE CANDIDATES THEIR RESULTS
PERSONALLY OR PER TELEPHONE.
2.
Supplementary examinations are not granted automatically, but are subjected to current
Departmental policy.
3.
The FBS200 supplementary examination will take place on 1 December 2011 from 15:30 – 18:30 in
HSB 4-2. Timetables to determine the date, time and place of supplementary examinations are
available on:
3.1 Notice boards at the main entrance to the Merensky Library;
3.2 Students Online (SOS);
3.3 MTN telephone nr. 083 123 1111.
4. The regulations concerning multiple choice examination papers are brought to your attention.
SUGGESTED SOLUTION 1
29 MARKS
a) i) Raw materials may be valued at actual cost or at standard cost
ii)
Closing inventory Raw Materials valued at .......
Profit before raw materials
Purchases
(450-440)kg = 10kg x (R1440/.450) ; (1 000g x R3)
Closing inventory
Actual loss
Actual
R1 362 642 R1 362 642
(1 440 000) (1 440 000)
32 000
30 000
(45 358)
(47 358)
80 000 u – 78 000 u
(R542 400 + 520 000)/ 80 000
2 000 u x R13.28 =
b) i) Variance in volumes (units)
Standard contribution per unit
Volume variance - Adverse
Standard
2 000 u
R13.28
R26 560
ii) The volume variance represents the difference between planned sales volumes (units)
and actual sales volumes (in units). For each of these units (in this instance 2 000
units) a contribution of R13.28 will not have been realised (hence adverse variance).
The actual profits therefore cannot be compared to the planned profits (cannot
compare apples with pears), but rather against the standard profit i.e. the profit that
would have been planned for if the plan at the start of the year was for the actual units.
The planned profit (R542 400) should therefore be adjusted downwards (in this case)
with the variance of R26 560, before a meaningful reconciliation of profits can be done.
R3 000 000 x 78/80 – R2 730 000 =
(440kg x R3 000) - 78/80 x R1 200 000 =
R224 016 – (78 000x R12.50 x 0.2ure) =
78/80 x R180 000 – R195 000 =
R60 528 – (12 000u x R4.80) =
78/80 x R57 600 – R57 600 =
R552 414 – R520 000 =
c) i)
ii)
iii)
iv)
v)
vi)
vii)
Sales price variance
Raw material usage variance
Direct labour rate variance
Direct labour efficiency variance
Variable overhead expenditure
Variable overhead efficiency
Fixed overhead expenditure
d) i)
Any valid reason explaining a lower than planned selling price eg. discount sales,
drop in demand leading to reduction of selling prices or special orders placed at
reduced prices etc,
ii)
Suppliers that granted discounts, errors on invoices in favour of Take It To Task, bulk
purchases at reduced/discounted prices etc
iii)
Unforeseen increases, inflation, incorrect suppliers etc that may have lead to higher
costs.
iv)
Packaging was damaged, errors made in packing etc which led to more packaging
required for the dummies produced.
1
R195 000
R150 000
R29 016
R19 500
R2 928
R1 440
R32 414
(A)
(A)
(A)
(A)
(A)
(A)
(A)
SUGGESTED SOLUTION 2:
22 MARKS
1. C
Cost driver
14,000.00
6,000.00
20,000.00
Product B
Product J
2 C
Cumulative average for first 4 units
Cumulative average for first 2 units
Cumulative average for first unit (and time)
3 D
Cumulative average for first 8 units
Cumulative average for first 16 units
Total time for first 16 units
Time for first 4 units
Time for order of 12 units
4 D
All the statements are correct
5 D
NPV of project 2 is R49 947
Joint cost
28,000.00
12,000.00
40,000.00
3 240 / 4 =
810 / 0.9 =
900 / 0.9 =
810 minutes
900 minutes
1 000 minutes
810 x 0.9 =
729 minutes
729 x 0.9 =
656.1 minutes
656.1 x 16 = 10 497.6 minutes
= (3 240) minutes
= 7 257.6 minutes
Annual equivalent is R22 972 (PV (NPV) = R49 947, i = 18%, n = 3, FV = 0)
6. A
Clock hours
40
:
:
Productive hours
35
0.5
:
:
:
Units
350
5
Rate per productive hour:
Clock hours : Productive hours
1 : 0.875
R 34.30 per clock hour = R 34.30 per 0.875 productive hours = R 39.20 per productive
hour
Rate per unit
R 39.20 per productive hour x 35 productive hours
350 units
= R 3.92 per unit
7 A
Sales
Variable costs
Fixed costs
Profit
=
75 000 x 8 =
R185 000 + R75 000 =
2
R1 080 000
(600 000)
(260 000)
R220 000
8 D
Profit per variable
Add: Fixed costs in inventory
Profit per absorption basis
(80 000–75 000) x R2.40 =
R220 000
12 000
R232 000
Sales
Production costs
80 000 x (2.4 + 8) =
Closing stock
5 000 x R10.40 =
Over-recovery–fixed overheadsR185 000–(80 000 x R2.40) =
Less non-production fixed costs
Profit for the year
R1 080 000
(832 000)
52 000
7 000
(75 000)
R232 000
OR
9. A
10 D
INCREASE
4 ℓ : 5ℓ
LOSS
5%
50%
100%
0%
Before loss:
5 700 ℓ ÷ (1 – 0.05) = 6 000 ℓ
Before increase:
4ℓ
:
5ℓ
4 800 ℓ
:
6 000 ℓ
11 C
Total
Maintenance
Stores
Maintenance:
Stores:
Production
Department 1
262 500
0.6M
0.75S
Production
Department 2
491 250
0.3M
0.2S
94 500 – 1M + 0.05S = 0
126 750 + 0.1M – 1S = 0
94 500 – 1M + 0.05 (126 750 + 0.1M) = 0
94 500 – 1M + 6337.5 + 0.005M = 0
88 162.5 = 0.995M
3
Maintenance
Stores
94 500
(1M)
0.05S
0
126 750
0.1M
(1S)
0
M = 101 344.22
S = 136 884.42211055276381909547738694
Total
Maintenance
Stores
Production
Department 1
262 500.00
60 806.53
102 663.32
425 969.85
Production
Department 2
491 250.00
30 403.27
27 376.88
549 030.15
Maintenance
Stores
94 500
(101 344.22)
6 844.22
0
126 750
10 134.42
(136 884.42)
0
A mere observation of the options would also have made it CLEAR that option C is
correct! Department 2 before any allocations already has total costs of R491 250,
leaving only B and C as potential options! Then 30% of Maintenance (R94 500) and 20%
of Stores (R126 750) must be assigned to Department 2. Clearly the answer is C. 
4
5
SUGGESTED SOLUTION 3:
34 MARKS
A suggestion is to determine the period for the last six months as follows:
Sales
Raw materials
Labour
Overheads
Administration
Selling expenses
Net profit
Taxation (28%)
Net profit after tax
First six
months
For the first
year
Rands
2 250 000
720 000
525 000
348 000
96 000
67 500
493 500
(138 180)
355 320
Rands
4 950 000
1 692 000
1 155 000
744 000
192 000
172 500
994 500
(278 460)
716 040
a)
Calculation (‘000)
Total costs
Cost per unit
Budget volumes (to nearest 1 000)
Units in 1st six months
Total units per six month period
2250-493.5; 4950 – 994.5
Sales units per month (÷ 6) =
iii)
b)
Increase in sales volume
(2 700/2 250 – 1) or (6 000/5 000 -1)
(R1 692 – 720)’000 =
=
Data for last
6 months
Rands
2 700 000
972 000
630 000
396 000
96 000
105 000
501 000
(140 280)
360 720
(i)
First six
months
(ii)
Last six
months
R1 756 500
R58.55
30 000
30 000
R3 955 500
R59.93
66 000
(30 000)
36 000
5 000
6 000
20%
i)
Total raw material cost
Number of units
Cost per unit
R972 000
36 000
R27.00
ii)
Total labour cost for
30 000 units =
Total labour cost for
36 000 units =
i.e. cost in total changed
R525 000
R630 000
Labour cost per unit
30 000 units =
Total labour cost for
36 000 units =
i.e. cost in per unit remained fixed
R17.50
R17.50
Labour cost meets the definition of a variable cost as it remains fixed per unit
but changes in total.
6
iii)
Total costs for
Total costs for
36 000 units =
30 000 units =
6 000 units =
R396 000
R348 000
R48 000
Variable portion per unit R48 000 / 6 000 units =
Total fixed
R396 000 – (36 000 x R8) =
Fixed per month
÷6=
c)
Selling price
Raw materials
Labour
Overheads
Administration
Selling expenses
R8.00
R108 000
R18 000
Calculation
Contribution per unit
Fixed
R2 250 000 / 30 000 =
R720 000 / 30 000 =
R75.00
(24.00)*
(17.50)
(8.00)
(1.25)
24.25
R216 000
192 000
90 000
R498 000
12 x R18 000 =
See note 1
See calc 1
Break-even
(R498 000 ÷ R24.25) =
@ 5 000 per month
Will break-even in month 5
20 536 units
*The raw material cost is R27 from month 7 onwards and contribution per unit will be
R21.25.
Note 1: The administration costs remain fixed in total (R96 000 per period of six
months) and therefore would have reduced per unit (36 000 u vs 30 000 u).
Administration costs are fixed
Calc 1:
Total costs for
Total costs for
36 000 units =
30 000 units =
6 000 units =
Variable portion per unit
Total fixed (stepped)
d)
R105 000 – (2 x 5 000)6 =
R67 500 – (1 x 5 000)6 =
R45 000
R37 500
R7 500
R7 500 / 6 000 units =
R5 000 x 6 + R10 000 x 6 =
R1.25
R90 000
Monthly sales volumes if accept
6 000u x 1.3333 =
First six months, extra
8 000 – 5 000 =
Last six months and thereafter, extra
8 000 – 6 000 =
8 000 units
3 000 units
2 000 units
Incremental cash-flows:
Year 1
First six months:
3 000 x 6 x R24.25 =
Last six months
2 000 x 6 x R21.25 =
Total for year 1
Additional selling costs (2nd person – for 1st six months) 6 x R5 000 =
7
R436 500
R255 000
R691 500
(30 000)
R661 500
Years 2 and 3
Incremental revenue cash-flow per annum
Cash-flows after tax:
Year 1
Years 2 and 3
e)
2 000 x 12 x 21.25 =
R510 000
R661 500 x 0.72 =
R510 000 x 0.72 =
R476 280
R367 200
Cf0 =
Cf1 =
Cf2 =
Cf3 =
Rnil
R476 280
R367 200
R367 200
i=
18%
NPV =
R890 833.70
The maximum fee that Relkap should consider is R890 834.
8
9
SUGGESTED SOLUTION 4:
35 MARKS
PART A (19 marks)
1. (i) Traditional (blanket-wide) approach
Cost driver
Total LH
18 000.00
42 000.00
60 000.00
Frying pans
Casserole pots
Budgeted FOH
1 077 000.00
2 513 000.00
3 590 000.00
Units
produced
12 000.00
20 000.00
Budgeted recovery rate per unit
89.75 
125.65 
Units
produced
12 000.00
20 000.00
Budgeted recovery rate per unit
40.00
62.50
Units
produced
12 000.00
20 000.00
Budgeted recovery rate per unit
20.00
50.00
Units
produced
12 000.00
20 000.00
Budgeted recovery rate per unit
5.00
4.00
1. (ii) Activity based costing approach
Purchases
Cost driver
Orders
Budgeted FOH
48.00 
480 000.00
125.00 
1 250 000.00
173.00
1 730 000.00
Frying pans
Casserole pots
Melting
Cost driver
Batches
Budgeted FOH
24.00 
240 000.00
100.00 
1 000 000.00
124.00
1 240 000.00
Frying pans
Casserole pots
Moulding
Cost driver
Frying pans
Casserole pots
Moulds
Budgeted FOH
600.00 
60 000.00
800.00 
80 000.00
1 400.00
140 000.00
Quality control and packaging
Total cost
Frying pan
Allocated to casserole pots
Per casserole pot
ABC cost per unit
R10 x 12 000 =
R480 000
(120 000)
R360 000
R360 000 / 20 000 =
R18.00
Frying pan
Casserole pot
10
R40 + 20 + 5 + 10 =
R62.50+ 50 + 4 + 18=
R75.00
R134.50
2. Explanation
Traditional:
ABC:
Budgeted fixed production overhead recovery rate per unit:
Frying pans
Casserole pots
Recovery rate
89.75
125.65
89.75
125.65
Budgeted fixed production overhead recovery rate per unit:
Frying pans
Casserole pots
Purchases
40.00
62.50
Melting
20.00
50.00
Moulding
5.00
4.00
Inspection & packaging
10.00
18.00
Recovery rate
75.00
134.50
Explanation:
Frying pans
Under the traditional approach, some of the production cost incurred in
respect of casserole pots are allocated to frying pans; causing the frying
pans to bear (carry) production costs not incurred by it ('cross
subsidisation').
The ABC approach corrects this problem by only including in the frying
pan's recovery rate, only production costs incurred in respect of frying
pans (not that of the casserole pots as well).
Casserole pots
Under the traditional approach, some of the production cost incurred in
respect of casserole pots are allocated to frying pans; causing less
production cost to be borne (carried) by the casserole pots.
The ABC approach corrects this problem by including all production
costs incurred in respect of the casserole pots into the casserole pot's
recovery rate.
11
PART B (16 marks)
2000
6000
-100
1900
6000
12000
-600
11400
5% normal loss
0%
RM:
Nuts
a)
10%
40%
RM: Salt water
OH: Spraying
Outputs
Closing inventory
Completed production
Normal loss (5%) at 80% stage
TOTAL OUTPUTS
Inputs
Introduced
Hence, opening inventory
50%
70%
OH: Roasting
=(13 300/0.95) – 13 300
80%
100%
OH: Quality inspection
RM: Packets
OH: Packaging
6 000 kg
13 300 kg
700 kg
20 000 kg
20 000 Kg
18 000 Kg
2 000 kg
1
c)
Equivalent units table
Normal loss (S&C)
Started & Completed
WIP (closing)
Normal loss (WIP B)
WIP (Opening)
Outputs
600
11 400
6 000
100
1 900
20 000
Proceeds - n/loss
Cost per equivalent kg =
Macadamia nuts
600
11 400
6 000
Water solution
600
11 400
4 000
18 000
2 880 000
-2 100
2 877 900 
16 000
140 000
R159.8833
2
Packages
11 400
Spraying
600
11 400
4 000
1 900
13 300
16 000
26 600
70 000
Roasting Inspection
Packaging
600
600
11 400
11 400
11 400
100
1 900
14 000
325 000
100
1 900
14 000
56 000
1 900
13 300
53 200
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