Faculty Economic & Management Sciences School School of Accounting Subject Management Accounting 1A Subject code CAAM 3691 Date June 2018 Duration 180 Minutes Marks 100 REGULAR EXAMINATION Examiners Moderator S TJIUEZA, T NAKWEENDA, B KERIMA, E ODERO & S KAPENAMBILI L STEYN (NWU) This question paper consists of 7 pages (including this front page). Instructions 1. 2. 3. 4. 5. 5. 6. Make sure that you are writing the correct examination paper. Make sure that you are handed the correct examination answer book by the invigilator. Show all calculations, where applicable. Start each question on a new page. No pencil work will be marked. Answer all questions. Use of a non-programmable pocket calculator permissible. UNIVERSITY OF NAMIBIA EXAMINATIONS Question 1 (20 Marks, 36 Minutes) Sophie and Eloy have just attained their qualifications from the University of Namibia in 2017. They have majored in BACC and BBA, respectively. Given the current state of the country’s economy, they have been looking for employment opportunities but without success. The two are now contemplating to start up their own manufacturing company (Cc). If it materialises, their company is to be granted an exclusive right of being a sole manufacturer and supplier of school uniforms for all secondary schools around Windhoek. Sophie’s uncle, is a well-known business tycoon who has got business interests in various sectors such as mining, agriculture, manufacturing and construction. Being an inborn entrepreneur, Sophie’s uncle was happy to learn that the two graduates are contemplating to start up their own business instead of being job seekers. As a result, he assured them through Sophie that he would do everything possible to support them both financially and materially. That is the reason why he requested them to provide him with a detailed (forecast): PART A: Statement of Cost of Goods to be manufactured, and PART B: Statement of profit/(loss) up to Gross Profit only. Consider the following assumptions for the month of June 2018: 1. Capital contribution N$ 10 000 2. Expected monthly production (prototype) 1 000 3. Expected monthly sales 90% of monthly production 4. Cost of raw material 15% of capital contribution 5. Expected raw material consumption 80% of total purchase 6. Direct cost of labour 10% of capital contribution 7. Indirect material 1/4 of cost of raw material 8. Indirect labour 3/4 of direct labour cost 9. Rental fee 10% of capital of capital (60%-factory and 40%-office) 10. Selling price per unit Gross profit margin of 25% 11. Assume that no other information is required in order answer both PARTS A and B. REQUIRED: Assist Sophie and Eloy in preparing the following as per Sophie MARKS uncle’s request: 9 1.1. Statement of Cost of Goods to be manufactured – clearly showing COGM. 1.2. Statement of profit/(loss) up to Gross Profit only. 11 TOTAL MARKS FOR QUESTION 1 20 2 Question 2 (15 Marks, 27 Minutes) 2.1 Material costs constitute a substantial investment of capital and a business that has adequate inventory remains competitive with ability of taking advantage of opportunities arising. It is for these reasons that the management must remain vigilant and keep a close eye on its inventory. REQUIRED: MARKS a List four reasons businesses should keep adequate inventory. 4 b List three drawbacks of holding too much inventory. 3 Total Marks 2.1 7 2.2 Muhembo Limited uses 10 000 Kilograms of its main raw material per month. The material costs N$ 8 per Kilogram to buy, supplier’s delivery costs are N$ 50 per order and internal ordering costs are N$ 4 per order. Total annual holding costs are N$1 per kilogram. The supplier has offered a discount of 1% if 6 000 kilograms of the material are bought at a time. REQUIRED: MARKS a Calculate the economic order quantity (EOQ) under the current purchasing system. 3 b Determine whether the discount offer should be accepted. 5 Total Marks 2.2 8 TOTAL MARKS FOR QUESTION 2 15 3 Question 3 (20 Marks, 36 Minutes) Home Economics (Pty) Ltd manufactures quality coffee tables. Currently, the company uses an hourly rate as its remuneration system. Being classified as a labour intensive enterprise, one of the challenges that the company is battling with is the retention of its skilled employees. Mr Jason Hailonga is the company’s Managing Director who is very much concerned about the high staff turnover being experienced under the Carpentry department. Though an employee satisfaction survey suggests for the piece work system, he is somewhat reluctant to implement it. I cannot just implement the piece work system because of the high staff turnover. There are other factors that one has to consider such as affordability on the side of the company and system flexibility. Thus, I would only recommend the implementation of a piece work system based on a detailed analysis between the current remuneration system and what is being proposed. As such, I will hire a consultant to do such an analysis for us – the MD narrates. The company’s working days are Monday to Friday. Each employee is expected to work eight hours a day, Monday to Friday. Mr Joseph is the company’s carpenter; whose employment package comprises the following: Standard production Normal rate per hour Pension contribution (employee) Social Security Contribution Trade union contribution Medical Aid Scheme PAYE 2 coffee tables per hour N$ 80,00 7,5% of basic wage 0,9% of basic wage N$250,00 per week 5% of basic wage 25% of taxable income Actual information for the week ended 18 May 2018: Number of coffee tables 75 produced Hours worked 35 Days worked 5 (Monday to Friday) It is the company’s policy of rewarding employees according to Halsey bonus system, irrespective of the remuneration system being used. This has been the company’s strategy as a way of motivating its employees especially those under the carpentry department where the rate of staff turnover is currently worrisome. REQUIRD: All questions should be answered within their context. MARKS 3.1. Assume that you are the hired consultant. Advice the company’s MD by 15 preparing a detailed analysis as per his request clearly showing the Net Wage Payable to Mr Joseph for the week ended 18 May 2018 based on both remuneration systems). 3.2. Has Joseph achieved his weekly normal production output? Accordingly, 3.5 comment on his weekly productivity. 3.3. Apart from the two remuneration systems discussed in the case study 1.5 above, what other aspects should the MD consider as a way of overcoming the current high staff turnover? TOTAL MARKS FOR QUESTION 20 4 Question 4 (15 Marks, 27 Minutes) The Metropolitan Hotel is located near a bus station that serves travellers who are on transit to SADC countries. The hotel which has five cost centres: Residential, Food and Beverage that deal directly with customers, while Housekeeping and Maintenance are internal service cost centres; is developing a cost accounting system. The management accountant is in the process of calculating overhead absorption rates for the next period. An extract from the overhead analysis sheet is as follows: N$ Residential 500 000 Food 350 000 Beverage 150 000 Housekeeping 100 000 Maintenance 80 000 Total 1 180 000 Housekeeping provides services to Residential, Food, Beverage and Maintenance in the ratio of 4:3:2:1 respectively. Maintenance on the other hand works 5% for Housekeeping, 20% for Food, 55% for Residential and 20% for Beverage. Additional information Residential Labour hours 35 000 Food Beverage 18 000 12 000 Required: Where applicable round off your answers to the nearest N$ Marks 4.1. Using the simultaneous equation approach, compute the total overhead for the internal service departments. 4 4.2 Allocated internal service departments overhead to Residential, Food and Beverage. 8 4.2. Compute the overhead recovery rate for Residential, Food and Beverage. 3 TOTAL MARKS FOR QUESTION 4 15 5 Question 5 (15 Marks – 27 Minutes) The Wilco Corporation is a large construction company in central Namibia and they have several projects running for the current financial period, one of its main projects is the construction of an administration building for a newly establish local university in the outskirts of Windhoek.. The project is expected to take three years and the revenue expected from it is N$ 120 000 000 with retention money of 5%. The expected costs to complete the project is N$75 000 000 and the client is expected to make a progress payment of 15 % of the contract price once the project is 25% complete. Other payments are scheduled at 50% and 75% completion of the project. Information related to that project for the first year is as follows: N$ Material costs incurred 22 500 000 Labour 8 250 000 Firm plant and equipment transferred to site 3 200 000 Equipment hired 650 000 Supervisor salaries 425 000 Head office costs 355 000 There was material worth N$ 325 000 left on site at the end of the period. Plant and equipment is depreciated at 20% on cost per annum and only the depreciated portion should be included on the contract as that is the cost associated with the specific contract. The value of work certified is N$ 35 000 000 REQUIRED: MARKS Calculate the level of completion for the project; will the contractor receive a progress payment? If so, how much will it be? Prepare and balance off the contract account for the period concerned, 5.2 only show the notional profit. TOTAL MARKS FOR QUESTION 5 5.1 6 12.5 2.5 15 Question 6 (15 Marks, 27 Minutes) You have been appointed as the assistant-management accountant at The Feed Master Ltd, this company specialises in animal food manufacturing. The following information relates to three types of chicken food: Glow, Med and Flam. The output in units is respectively 160 bags, 120 bags and 100 bags. The products are produced in production runs of 20 units and sold in batches of 5 units. The cost to manufacture is as follows: Glow Med Flam Direct material (per unit) N$140 90% of the cost of Glow N$120 Direct labour (per unit) N$228 N$221 N$214 8 6 5 Machine hours (per unit) The production overhead costs for the period and the relevant cost drivers are as follows: Factory rent N$5 000 Factory depreciation N$1 000 Supervision N$15 000 Machine set-up costs N$12 502 Number of production runs Stores receiving N$17 400 Requisitions raised Distribution costs N$34 086 Orders executed Factory rent, factory depreciation and supervision costs are allocated based on machine hours. The stores raised a total of 75 requisitions, of which 25 were for Glow. Flam required 20% more requisitions than Glow. REQUIRED: MARKS 6.1 Calculate the allocation Rate Per Machine Hour 2 6.2 Calculate the Total Cost for each product using Activity-Based Costing System 13 TOTAL MARKS FOR QUESTION 6 15 … The end … 7