GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
MANUFACTURING
SECTION A: TYPICAL EXAM QUESTIONS
HINTS
 Always draw up ledger accounts or t accounts as calculations
 Remember the flow of activities from ledger accounts to cost accounts and then to
the work in process
 3 cost accounts -work in process
 2 cost accounts – profit and loss
QUESTION 4
65 Marks
30 Minutes
(DOE EXAMPLAR 2 2008)
MANUFACTURING AND COST CONCEPTS
You are provided with information relating to Tasty Dog Treats (Pty) Ltd for the month of July
2008. The business makes tasty dog pellets for pets. The business is personally owned and
managed by Peter Hound.
REQUIRED:
4.1 Prepare the Production Cost Statement for July 2008.
Show workings in brackets on the production cost statement.
(30)
4.2 Prepare the Income Statement for July 2008. Show workings in (23)
brackets.
4.3 In order to be able to print the Proudly South African logo on the
packaging of his product; Peter will need to purchases the cardboard
boxes from a local supplier rather than import them from Botswana.
4.3.1 Calculate the unit cost of producing a complete box of tasty dog
Pellets in July 2008. (Show workings to earn marks).
(3)
4.3.2 Provide 2 reasons why using a local supplier is likely to reduce
the unit cost calculated above
(2)
4.3.3 Briefly explain why by doubling production to 60 000 units during
August 2008 the profit made will more than double.
(2)
4.4 In order to analyse the performance of the business, the accountant
knows that it is essential to work out the break-even point of production.
However, he is unsure of how to do the necessary calculation.
4.4.1 Explain to the Accountant how the break-even is calculated.
(Note you are not required to do the calculation, only explain the
method/formula.)
(3)
4.4.2 After doing the necessary calculation, it is determined that the
break- even point for this business is 17 361 units. Should the
Accountant be happy with the business’s present production
(2)
level? Why?
4.4 In order to analyse the performance of the business, the accountant
knows that it is essential to work out the break-even point of production.
However, he is unsure of how to do the necessary calculation.
Page 1 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
INFORMATION:
1.
2.
Production & Sales information of tasty dog
pellets:
Number of finished boxes of dog pellets produced
Number of units sold
Mark-up on cost of production
Selling price per unit
Stock at the beginning and end of the
month
Raw materials stock:
 Stock of ingredients to make dog pellets
 Stock of cardboard boxes
Work-in-process stock
Finished goods stock
Indirect materials stock (cleaning materials)
Stock of packing materials for deliveries
July 2008
30 000
30 000
40%
?
1 July 2008
R 70 000
Nil
Nil
Nil
Nil
R 3 500
31 July 2008
R 85 000
R 14
400
Nil
Nil
Nil
R 1 300
3.
Raw materials (bought from a local supplier) comprise all ingredients for the
production of dog pellets as well as the cardboard box containers (imported
from a supplier in Botswana).
 Ingredients were bought during the month on credit for R320 000 (these
were delivered free of charge)
 Bought 50 000 cardboard boxes from Botswana for a total cost of 20
000 Pula. One Botswana Pula is equivalent to R1,30. Import duties are
10%. Transport costs paid on these boxes, R7 400.
4.
Remuneration is as follows:
 The 12 direct workers are each required to work 180 hours per month
i.e. 20 days at 9 hours per day. Their normal rate of pay is R28 per
hour. During July, however, 50 hours were lost as a result of Eskom
power cuts. The workers were required to work 50 hours of overtime
over weekends but only 9 of them were available for this (3 said they
were sick). The overtime rate is double the normal rate.
 The factory foreman is paid a fixed salary of R11 000 per month
irrespective of overtime. He had to be paid a bonus of R6 000 for
working on the weekends.
 The bookkeeper is paid a monthly salary of R4 000.
 The cleaner is paid a fixed salary of R3 200 per month. This is to be
split between the factory, the office and the sales dept in the ratio 5:1:2.
 The salespersons were paid commission of R41 964 in total.
5.
Electricity and water paid during the month was R29 000. This is allocated as
follows:
 Office: R500
 Sales department: R1 000
 Factory plant & machinery accounts for the rest.
Page 2 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
6.
Cleaning materials were bought for cash, R12 400. Transport costs on these
were paid out of petty cash, R600. All of these materials were used. The
factory uses 80% of these indirect materials, while the rest is used equally by
the Administration and Selling & Distribution departments.
7.
Rent paid was R15 300. This is to be split according to floor area:
 Factory
300 sq metres
 Office
10 sq metres
 Sales department
30 sq metres
8.
Depreciation for the month:
 Depreciation on delivery vehicle, R9 400
 Depreciation on factory plant, R55 000
 Depreciation on office equipment, R900
9.
Other transactions for July:
 Packing materials (for deliveries to customers) bought, R6 500 (R1 300
of this was unused)
 Petrol bought for delivery vehicle and salesmen’s sales vehicles, R18
000
 Repairs to factory machines, R66 000.
[65]
SECTION B: ADDITIONAL CONTENT NOTES
New ledger accounts pertaining to manufacturing concerns are divided into the following
categories:
Direct / Raw Material stock
Work in Process stock
Finished Goods stock
Consumable stores stock
Direct Material
Factory Overheads
Direct Labour
Selling & Distibution
Administration
Salaries
Depreciation
Telephone
Rates
STOCK ACCOUNTS
COSTS ACCOUNTS
NOMINAL ACOUNTS
Page 3 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
When doing the ledger accounts for a manufacturing concern the flow of information from one
ledger account to the other should be understood clearly before you can attempt to do these
accounts.
The following diagrams illustrate the flow of information:
Purchase of raw materials
Record in Raw
materials stock
a/c
Stock account
Transfer raw
materials used
to Direct
Materials cost
a/c
Cost account
Close off
Direct
materials cost
a/c to WIP a/c
WIP account
Recording Direct wages / Labour
Record in
wages a/c
Transfer to
Direct Labour
cost a/c
Expense account
Cost account
Close off
Direct labour
cost a/c to
WIP a/c
WIP account
Recording of Factory Overheads (Indirect labour, Factory rent, Depreciation on
equipment, etc)
Record in
expense a/c,
e.g. Factory
rent
Expense account
Transfer to
Factory
overhead cost
a/c
Cost account
Close off
Factory
overhead cost
a/c to WIP a/c
WIP account
Page 4 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
Recording of Finished goods produced
Record in
Finished
salesgoods stock
a/c (as per
WIP a/c)
This account also serves as the corresponding account for the cost
of sales account, similar to the trading stock account in a trading
business.
Stock account
SECTION C: SOLUTIONS AND HINTS
QUESTION 4
4.1
PRODUCTION COST STATEMENT of TASTY DOG TREATS (PTY) LTD – JULY 2008
TOTAL
Direct materials cost
(70 000 + 320 000 – 85 000 + 26000 + 2600
+ 7400 – 14400)
(12 x R28 x 130 hrs) + ( 9 x R56 x 50 hrs) = 43 680
 + 25 200 
Direct labour cost
Prime cost
Factory overhead cost
(11000 + 6000 + 2000 + 27500+ 10400 +
13500 + 55000+ 66000)
Total cost of production
Work-in-process on 1 July 2008
Work-in-process on 31 July 2008
Cost of producing 30 000 finished boxes of dog pellets
326 600

68 880

395 480

191 400

586 880
0

(0)
586 880

[30]
Page 5 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
INCOME STATEMENT OF TASTY DOG TREATS (PTY) LTD FOR JULY 2008
TOTAL
Sales (30 000 units sold)
1.40
(COS x 1.40) = 586 880 x
821 632

586 880

234 752

(90 064)

7 550

82 514

144 688

Cost of sales (see Production cost statement)
Gross profit
Other operating costs
Administration cost
(4000 + 400 + 500 + 1300 + 450 + 900)
Selling & distribution cost








(800 + 41 964 + 1000 + 1300 + 1350 +9400 +8700 + 18000
Net profit
[23]
4.3
4.3.1 Calculate the unit cost of producing a complete box of
tasty dog pellets in July 2008. (Show workings to earn
marks).
586 880 = R 19.56 
30 000 
4.3.2 Provide 2 reasons why using a local supplier is likely to
reduce the unit cost calculated above.
[3]
 No Import Duties / Less transport costs 
 No effect of the exchange rate (1 Pula = R 1.30) 
[2]
4.3.3 Briefly explain why by doubling production to 60 000
units during August 2008 the profit made will more than
double.
Although variable costs will increase, the fixed costs will
remain the same despite the increase in production –
Economies of scale. 
.
[2]
Page 6 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
4.4 4.4.1 Explain how to work out break-even point of production.
Total fixed costs (factory overheads + admin costs) 
Selling price per unit – per unit of (dir mat + dir labour
+ S & D
Learners do not have to write out the formula but need
to discuss.
[3]
4.4.2 
Comment on the break-even value
Yes, the business is producing 30 000 units which is more
than the break-even point.
[2]
TOTAL MARKS: 65
Learner Note: Showall calculations to earn part marks. As you attempt the homework, you
need to ensure that you are able to answer the questions in the allocated time frames. If you
get stuck, you should refer to either the additional notes or your class teacher.
SECTION D: HOMEWORK
QUESTION 5
5.1
45 marks 25 minutes
NERD MANUFACTURERS
(DOE PRELIM 2000)
(32 marks)
Nerd Manufactures makes school tracksuits and sell these at a mark up of 50 % on cost.
REQUIRED:
5.1.1 Prepare the Production Cost Statement of NERD Manufacturers for
the year ended 31 August 2008. Only the note for factory overhead
costs is required. Workings must be shown in brackets where notes
are not required so that part marks can be awarded.
(28)
5.1.2 The owner, D. Dunn, is of the opinion that employees are not using
the raw materials very effectively or track suits are being stolen in
the factory. Recommend TWO internal control measures that could
be implemented by management to solve these problems.
(4)
Page 7 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
INFORMATION:
NERD MANUFACTURERS
Balances on 1 September 2007:
Factory plant
260 000
Accumulated depreciation on factory plant
84 000
Stocks on hand :
Raw materials
14 700
Work in progress
3 400
Finished goods
4 200
Consumable stores stock
1 600
Transactions for the year ended 31 August 2008:
Factory wages: Direct
Indirect
156 000
9 200
Purchases: Raw materials
136 000
Factory plant purchased ( 1 February 2008 )
140 000
Rent
24 000
Factory foreman’s salary
86 000
Carriage on raw materials purchased
5 800
Insurance
5 600
Consumable stores purchased on credit
5 900
Other Factory overheads
25 200
ADDITIONAL INFORMATION:
1.
Inventory on hand at 31 August 2008 is as follows:
Raw materials
R 6 000
Finished goods
R12 600
Work in progress
R10 870
Consumable stores
R 2 100
2.
The factory plant is depreciated at 15% p.a. on the carrying value.
3.
80% of the consumable stores is used in the factory and the balance used
in sales
4.
The rent must be apportioned as follows: factory 60% and the rest equally
between sales and administration.
5.
Insurance must be divided among the factory, sales and office in
proportion to the floor area which is currently in the ratio 4:2:1 respectively.
Page 8 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
5.2
GRADE 12
SOWETO SHOE FACTORY
SESSION 29
(LEARNER NOTES)
(13 marks)
SOWETO SHOE FACTORY manufactures sport shoes. The factory produced 36 000 pairs of
shoes during the year and all were sold. There was no work in progress stock either at the
beginning or at the end of the year.
REQUIRED:
5.2.1 Calculate the unit cost of production.
(3)
5.2.2 Calculate the number of pairs of shoes that must be produced and
sold to break even.
(10)
INFORMATION extracted from the Production Cost Statement for the year
ended 29 February 2008.
Direct material cost
R1 980 000
Direct labour cost
2 592 000
Factory overheat cost
864 000
Total cost of production
5 436 000
Information from the Income Statement for the year ended 29 February 2008
Sales
R8 964 000
Cost of sales
5 436 000
Administration cost (all fixed costs)
540 000
Selling and distribution cost (all Variable costs)
792 000
Net profit for the year
2 196 000
[45]
SECTION E: SOLUTIONS TO SESSION 28 HOMEWORK
QUESTION 1
37 MARKS
22 MINUTES
1.1 ABC Traders.
Note to the Financial Statements on 29 February 2008.
TANGIBLE ASSETS NOTE
Carrying value on 1 March 2007
Cost at Beginning of year
Accumulated depreciation at
beginning of year
(25)
Land and
Buildings
Vehicles
Equipment
600 000
285 000
50 000
600 000
420 000
90 000
-
(135 000) 
(40 000) 
Page 9 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
MOVEMENT DURING THE YEAR:
Additions at cost
SESSION 29
(LEARNER NOTES)
250 000
31 125
28 900
250 000
155 000
(81 000)

35 000
? Disposal at carrying value
-
? Depreciation for the year
-
(42 875) 
(6 100)

Carrying value on 29 February 2008
850 000
316 125
78 900
Cost at end of year
Accumulated depreciation at end of
year.
850 000
455 000
(138 875)

125 000
-
-
(46 100) 
1.2
If you were a partner (Benny or Canny) in this business, what comments would you
make about this incident and its treatment in the books? Briefly explain TWO points.
Alternative answers possible. Is the learner presenting a logical argument?
Point (1)
Andy to receive a written warning. He acted irresponsibly in allowing his son to use a
business vehicle without a license and without discussing this with the other partners.
Assets must be signed out and private use must be authorized by all partners. Any
additional penalties by the insurance company for the insuring of vehicles in the future
must be carried by Andy. 
Point (2)
Andy must be made to draw the damaged vehicle at its carrying value at the time of the
accident, i.e. R 81 000. It is not right that the partnership must reflect a loss on disposal of
R 71 000 as a result of Andy’s irresponsibility. Andy’s owners equity must be reduced by
the full amount of
R 81 000 and not just the scrap value. 
(6)
1.3
(a) Drawings – ANDY 
(b) GJ 
(c) Loss on Disposal of Asset

(6)
Page 10 of 12
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
GRADE 12
SESSION 29
(LEARNER NOTES)
SECTION F: SOLUTIONS TO QUESTIONS FROM SESSION 28
QUESTION 1
44 MARKS
FIXED ASSETS AND ASSET DISPOSAL
1.1
27 MINUTES
MAPS STORES
1.1 Your friend insists that the Asset Disposal account is a Balance Sheet account.
Her reasoning is that because this account deals with assets it has to be a Balance
Sheet account. Explain whether you agree with him/her.
[2]
Disagree.
Could be either a Balance sheet account or a nominal account. The asset disposal
account is simply a working to calculate the profit (Income) or loss (expense) on the
disposal of the asset.
1.2. Give two possible reasons for tangible assets being disposed off.
Old.
Outdated/obsolete.
There is no longer any use for it.
Any other suitable reason.
1.3
Complete the missing details marked [1] – [6].
[1] Equipment
[2] GJ
[3] Bank
[4] 10 000 – 650 – 4 750 = R4 600
[5] Loss on disposal of asset
[6] GJ
[2]
[6]
1.4 Depreciation rate on equipment is 15% p.a. on cost. The bookkeeper made a
mistake in updating the depreciation on the equipment that was sold. He calculated for
the entire year. Correct the error and determine the profit/loss on disposal of asset.[4]
10 000 x 15% x 6/12 = 750
10
00 – 4 600 – (4 750 – 750) = R1 400 [Loss] [
1.5
Taking the information from 10.1.4 into account, state the amount that will
beshown in the Tangible Asset note for ‘Disposals at carrying value’.
[2]
10
00 – 4 000 = R6 000[]
1.6
Where in the financial statements is the R550 (or adjusted figure as per 9.1.5)
recorded?
[2]
Income Statement – under Operating expenses
Page 11 of 12
0
0
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING
1.2.1
GRADE 12
SESSION 29
EEZY STORES
Tangible/Fixed assets
Cost
Accumulated depreciation
Vehicles
200 000
[60 000] 
[124 375]
353 125 
Cost[1]
Accumulated depreciation[2]
660 000 
[306 875] 
[2]
(7)
600 000
[262 500] 
Carrying value at beginning of year
Movements
Additions at cost
Disposals at carrying value[1]
Depreciation for the year
Carrying value at end of year
[1]
(LEARNER NOTES)
337 500
600 000 + 200 000 – [80 000 + 60 000]
262 500 + 124 375 – 80 000
1.2.2 At what price was the damaged vehicle sold?
60 000 – 15 000
[3]
1.2.3.1How do tangible assets contribute towards the generation of profits? Give two
examples.
[4]
Vehicles – deliveries to customers and collection of stock and other items
purchased.
Computers – maintaining business records.
Any other suitable answer.
1.2.3.2 Give two examples of measures that can be implemented to ensure the efficient
management and control of tangible assets?
[4]
Maintain proper records – fixed assets register.
Conduct regular physical counts.
Any other suitable answer.
1.2.3.3 U.Risk is the owner of a transport company. He owns 10 large trucks worth almost
R20 000 000. These trucks are on the road almost every day. He has no insurance
on his vehicles as he believes that the money he would otherwise have spent on
annual insurance premiums can be utilised to purchase another vehicle. According
to him he is saving approximately R360 000 per year.
Do you think that this is good business practice? State your views and
recommendations
.
[8]
Different views possible. [4 valid points at 2 marks per point)
Some suggestions:
He would lose a lot more if his vehicle is a total write off in an accident.
Consider hijacking and theft of vehicles.
Consider damages arising to third parties as a result of negligence on the part of his
drivers.
Consider losses arising as a result of accidents.
[4 x 2]
The SSIP is supported by
Page 12 of 12