MANUFACTURING QUESTIONS ACCOUNTING GRADE 12 ENGLISH 1 ACTIVITY 1 NSC NOV 2019 , QUESTION 1 MANUFACTURING Sihle Sangweni owns two separate factories that manufacture products according to orders received. There is no work-in-progress stock. The year-end is 28 February. 1.1 1.2 Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question numbers (1.1.1 to 1.1.3) in the ANSWER BOOK. 1.1.1 Wages of factory cleaners is a direct labour cost. 1.1.2 Delivery costs of finished goods to retailers are a selling and distribution cost. 1.1.3 Depreciation on office equipment is an administration cost. (3 x 1) (3) DESKS FACTORY REQUIRED: 1.2.1 Complete the Factory Overhead Cost Note. (8) 1.2.2 Calculate the total cost of production of finished goods. (5) 1.2.3 Sihle wants to produce an additional 1 500 desks, while maintaining the selling price and costs. Calculate the additional profit he can expect. 1.3 (4) CHAIRS FACTORY REQUIRED: 1.3.1 Provide a calculation to confirm the break-even point for 2019. (4) 1.3.2 Comment on the break-even point and the production level achieved. Quote figures. (4) 1.3.3 Raw material consists of wood only. In 2019 the cost is R120 per square metre (m2) and 1,2 m2 of wood is needed to make one chair. During the year, 22 000 m2 wood was dispatched to the factory. Sihle feels that the wood raw material was not well controlled. 1.3.4 Provide a calculation to support his opinion. Identify TWO possible causes of this problem. Provide a solution for EACH. Give TWO reasons for the increase in direct labour cost. Provide a solution for EACH. Note that wages and salaries increased by 5% in the current financial year. Manufacturing –Questions (4) (4) (4) 2 INFORMATION: A. DESKS FACTORY Extract of pre-adjustment amounts on 28 February 2019 R 296 500 166 000 24 500 248 000 345 600 12 600 107 700 Indirect labour Depreciation of factory plant Advertising Water and electricity Rent expense Insurance allocated to sales department Factory sundry expenses Adjustments to factory overheads for desks: B. Water and electricity for February 2019, R18 000, must be taken into account. 80% is allocated to the factory. The balance is an administration cost. Rent must be allocated according to floor area: Factory: 810 m2 Office: 180 m2 Sales department: 90 m2 75% of insurance must be allocated to the factory. The balance applies to the sales department. INFORMATION FOR BOTH FACTORIES COSTS Variable Fixed Direct material Direct labour Selling and distribution Total variable costs Factory overheads Administration Per unit DESKS 2019 Amount Per unit R3 060 000 R340 ? R160 R720 000 R80 R580 R360 000 SELLING PRICES R750 R40 CHAIRS (Unit costs) 2019 2018 R165 R124 R90 R70 R50 R60 R305 R250 R76 R75 R20 R18 R390 R370 UNITS Produced and sold Break-even point 9 000 8 471 16 000 18 071 15 000 12 400 40 Manufacturing –Questions 3 ACTIVITY 2 NSC NOV 2018 , QUESTION 1 MANUFACTURING 1.1 1.2 (40 marks) Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question numbers (1.1.1 to 1.1.3) in the ANSWER BOOK. 1.1.1 Bad debts are an administration cost. 1.1.2 Indirect labour is a factory overhead cost. 1.1.3 Rent expense is a fixed cost. (3) KRIGE SHIRTS The business manufactures shirts. The financial year-end is 31 July 2018. REQUIRED: 1.2.1 1.2.2 Refer to Information C. Calculate direct labour cost. (9) Production Cost Statement for the year ended 31 July 2018 (12) INFORMATION: A. Work-in-progress stock balance 31 JULY 2018 ? B. Raw materials issued to factory: R528 300 C. Direct labour: 1 AUGUST 2017 R35 570 Number of factory workers 4 Normal time expected per worker per year 1 960 hours Normal time rate R90 per hour Bonuses to workers: 12% of normal wages NOTE: One worker worked only 1 680 hours and received a reduced bonus of R12 146. D. Factory overheads were calculated at R360 880 for the year. However, this excludes insurance of R48 750 paid for the period 1 August 2017 to 31 August 2018. Insurance must be allocated to the factory, administration and sales in the ratio 4: 3: 2. E. Production for the year: 17 500 shirts at a cost of R95 per shirt Manufacturing –Questions 4 1.3 GEMMA'S MANUFACTURERS This business manufactures security gates. The financial year-end is 31 August 2018. REQUIRED: 1.3.1 1.3.2 1.3.3 Calculate the break-even point for the year ended August 2018. 31 (5) Compare and comment on the break-even point and the production level achieved over the last two years. Quote figures. (6) Give TWO reasons for the increase in direct material cost. Suggest ONE way to control this cost. (5) INFORMATION FOR YEAR ENDED 31 AUGUST: A. COSTS Direct materials Direct labour Selling and distribution TOTAL VARIABLE COST Factory overheads Administration B. Variable Fixed 2018 UNIT TOTAL COST AMOUNT 75 600 R180 105 840 R252 60 900 R145 242 340 R577 67 200 51 660 R160 R123 2017 UNIT COST R148 R244 R136 R156 R127 Additional information: Total sales Selling price per unit Units produced and sold Break-even point 2018 R382 200 R910 420 units ? 2017 R475 200 R880 540 units 435 units 40 Manufacturing –Questions 5 ACTIVITY 3 NSC NOV 2017 , QUESTION 2 MANUFACTURING 2.1 (55 marks) GEVEN MANUFACTURERS The business produces wooden tables. REQUIRED: Prepare the following for the year ended 28 February 2017: 2.1.1 Production Cost Statement (14) 2.1.2 Abridged Income Statement (14) INFORMATION: A. Stock on hand: Work-in-process Finished goods 28 FEBRUARY 2017 ? 400 tables, valued using FIFO method 1 MARCH 2016 R160 000 1 200 tables at R280 = R336 000 B. Production and sales for the year: 7 200 tables were produced at a unit cost of R330 each. 8 000 tables were sold for R4 080 000. C. Costs (before adjustments): Administration Factory overheads Direct materials Direct labour Selling and distribution R148 400 R487 200 R1 050 000 ? R422 000 Adjustments: Payment to EZ Transport, R102 000, was incorrectly allocated to Selling and Distribution. This was actually meant for delivering wood to the factory. The cleaning contract for the year, R126 000, was shared between Factory and Administration in the ratio 2: 1. However, 80% should have been allocated to Factory. D. Prime cost: R1 800 000 (after adjustments) Manufacturing –Questions 6 2.2 GYMWEAR MANUFACTURERS Gymwear Manufacturers is owned by Jan Fiks. They produce shoes and shirts for gym training. Jan requires assistance in interpreting his 2017 results. Note that one pair of shoes comprises one unit. REQUIRED: 2.2.1 Shirts: Calculate the break-even point for shirts. Jan is not satisfied with the variable costs per unit, even though the total variable costs per unit decreased by R6. - Identify ONE variable cost (with figures) that has not been well controlled. Give TWO possible reasons for this problem. (4) Explain why Jan might be concerned about the large decreases in the other TWO variable costs. (4) Jan does not understand why the unit cost of production has increased when neither his fixed costs nor the variable costs have increased. Explain why this is so. State ONE point (with figures). (4) 2.2.2 (4) Shoes: Calculate the % increase in the selling price of shoes. (3) Jan decided to improve the quality of the shoes and to export them. Explain how the direct material costs and the selling and distribution costs were affected by this decision. Provide figures. (4) Jan was concerned that the increase in price would have a negative impact on the business. Explain whether his concern was justified. State TWO points. (4) Manufacturing –Questions 7 INFORMATION: SHIRTS 2016 ? 11 522 16 100 25 000 R500 400 R620 000 R302 R290 R310 R290 SHOES 2017 2016 3 842 4 317 7 750 6 500 R2 379 750 R1 183 000 R1 640 R1 260 R1 100 R1 250 R530 000 R530 000 R2 340 000 R2 340 000 ? R238 ? R244 R302 R1 031 R360 R718 R92 R116 R456 R330 R131 R100 R381 R360 R15 R28 R194 R28 R242 R228 R1 100 R1 004 2017 Break-even point Units produced and sold Net profit Selling price per unit Selling price of competitors Total fixed costs (factory overhead and administration) Total fixed cost per unit Total variable costs per unit Direct material costs per unit Direct labour costs per unit Selling and distribution costs per unit Unit cost of production 55 Manufacturing –Questions 8 ACTIVITY 4 NSC FEB 2018, QUESTION 3 QUESTION 3: MANUFACTURING 3.1 (45 marks; 25 minutes) GLAMOUR DRESS CREATIONS Glamour Dress Creations manufactures one type of ladies' dress. The financial year ended on 28 February 2017. REQUIRED: 3.1.1 3.1.2 Prepare the Production Cost Statement for the year ended 28 February 2017. (21) Calculate the net profit for the year ended 28 February 2017. (7) INFORMATION: A. Stock balances, among others, were taken from the General Ledger: Work-in-process stock Finished goods stock B. Information extracted 28 February 2017: 28 FEBRUARY 2017 ? R190 000 from the financial 1 MARCH 2016 R76 000 R110 000 records Administration cost Raw/Direct material cost Factory overhead cost Selling and distribution cost Net wages paid to factory workers (direct labour) SARS: PAYE UIF deductions Sales Cost of sales C. R259 010 918 550 227 240 410 000 753 300 48 600 1% ? 1 860 000 The following information has not been taken into account: D. on A problem was identified regarding the valuation of the closing stock of raw materials: 5 000 metres of material on hand, with a unit cost of R2,75 per metre, were erroneously recorded as R3,80 per metre. This must be corrected. Rent expense was omitted from the figures above. Total rent paid for the financial year amounted to R87 100. The rent for March 2017 has been paid in advance. The rent was increased by R650 on 1 December 2016. 80% of this expense must be allocated to the factory and the balance must be regarded as an office expense. The employer contributes 1% to UIF on behalf of the employees. The business uses a mark-up percentage of 75% on cost. During the financial year special discounts of R85 000 were offered to cash customers who bought in bulk. Manufacturing –Questions 9 Manufacturing –Questions 10 3.2 LIGHTING SOLUTIONS George Mkize is the owner of Lighting Solutions, a manufacturing business that produces one type of energy-saving light bulb. The financial year ended on 31 December 2017. NOTE: Production is based on orders received; therefore there are no balances for workin-process. The current inflation rate is 8%. REQUIRED: 3.2.1 3.2.2 3.2.3 3.2.4 Calculate the factory overhead cost per unit for the year ended 31 December 2017. (2) Explain why George would not be concerned about the 28,1% increase in total variable cost from R936 000 to R1 200 000. (3) Give TWO reasons for the increase in the selling and distribution cost per unit. (2) George wants to know if the production level for this financial year is satisfactory. 3.2.5 Calculate the break-even point for the year ended 31 December 2017. Comment on the production level for 2017. State TWO points. Quote figures. Lighting Solutions are considering importing raw materials because it is cheaper and of a higher quality. Name TWO aspects that they must consider before finalising their decision. (4) (4) (2) INFORMATION: Information from the records of Lighting Solutions on 31 December: 2017 TOTAL (R) Fixed costs: Factory overhead cost Administration cost Variable costs: Direct material cost Direct labour cost Selling and distribution cost Selling price per unit Number of units produced and sold Break-even point (units) 575 000 395 000 180 000 1 200 000 435 000 560 000 205 000 R45,00 50 000 ? 2016 UNIT COST (R) 11,50 (3.2.1) 24,00 8,70 11,20 4,10 TOTAL (R) UNIT COST (R) 428 400 310 800 117 600 936 600 344 400 441 000 151 200 10,20 7,40 2,80 22,30 8,20 10,50 3,60 R41,50 42 000 22 313 45 Manufacturing –Questions 11 Manufacturing –Questions