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I
HHITHBIH UFIIVERSITY
OF SCIENCE nno TECHNOLOGY
FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE
QUALIFICATION: BACHELOR OF TECHNOLOGY IN ACCOUNTING AND FINANCE
QUALIFICATION CODE: ZBBACF LEVEL: 7
COURSE CODE: CMA312$ COURSE NAME: COST & MANAGEMENT ACCOUNTING 33
SESSION: NOVEMBER 2017 PAPER: THEORY
DURATION: 3 HOURS MARKS: 100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER(S) Mr. G Jansen
MODERATOR:Mr- G Bowa
INSTRUCTIONS
This question paper is made up of four (4) questions.
Answer ALL the questions and in blue or black ink.
Start each question on a new page in your answer booklet.
Questions relating to this examination may be raised in the initial 30 minutes after the start of
the paper. Thereafter, candidates must use their initiative to deal with any perceived error or
ambiguities & any assumption made by the candidate should be clearly stated.
PWN!‘
THIS QUESTION PAPER CONSISTS OF 6 PAGES (Including this front page)
GENERAL
The names of people and businesses used throughout this examination paper do not reflect the reality
and may be purely coincidental.
QUESTION 1 (25 MARKS)
Timbercity Ltd has the following budgeted unit sales figures for the six months from October 2016:
Month Units
October 700
November 800
December 900
January 800
February 1,200
March 1,000
The company makes and sells one product only, the unit costs and selling price of which are:
N$
Selling price 100
Material A 2 kilos at N$6 per kilo 12
Material B 1.5 kilos at N$4 per kilo 6
Labour 2 hours at N$12 per hour 24
Variable overhead 2 hours at N$9 per hour 18
The following information is also available:
i.
ii.
iii.
iv.
v.
vi.
vii.
Customers are allowed one month’s credit and all sales are on credit.
Production takes place in the month of sale.
Closing inventory of finished product are equal to 10% of the next month’s sales.
Materials are purchased in the month before use and are paid for two months after purchase.
Wages and variable overhead are paid for in the month of production.
Fixed overhead is N$4,000 per month (including depreciation of N$800) payable in the month
incurred.
The opening cash balance at 30 November 2015 is expected to be N$40,000 overdrawn.
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REQUIRED:
a) Prepare the following for the month of December only:
i.
ii.
iii.
Sales Budget (in units and N$)
Production Budget (units only)
Raw Material Purchases Budget for both materials A and B (kilos and N$)
(1)
(2)
(6)
b) Prepare the Cash Budget, in columnar form, for the months of December and January only. (16)
QUESTION 2
Gobabis Ltd uses a standard costing system and has provided the following production and sales
information for the month of November 2016:
Unit Cost data
Budget/Standard Actual
Materials 25 kg per unit 26kg per unit
Materials price N$1.00 per kg N$1.10 per kg
Labour hours 5 hrs per unit 4.5 hrs per unit
Labour rate N$13.50 per hr N$14.75 per hr
Monthly performance information
Sales — units 10,000 9,000
Sales price N$100 N$104
Materials cost N$250,000 N$257,400
Labour cost N$675,000 N$597,375
Variable overheads N$10,000 N$9,250
Fixed overheads N$25,000 N$23,240
Direct labour hours 50,000 40,500
REQUIRED:
(25 MARKS)
a) Prepare a statement showing the budgeted and actual profit for the month of November 2016. (2)
b) Calculate a budgeted variable overhead absorption rate per direct labour hour (2)
0) Calculate each of the following variances:
i. Sales price variance.
ii. Sales volume variance.
iii. Materials price variance.
iv. Materials usage variance
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v. Labour rate variance.
vi. Labour efficiency variance.
vii. Variable overhead expenditure variance.
viii. Variable overhead efficiency variance.
ix. Fixed overhead expenditure variance. (9)
d) Prepare a variance reconciliation of budget and actual profits. (6)
e) Explain briefly what you understand by each of the following approaches to budgeting;
i. Activity based budgeting;
ii. Zero based budgeting;
iii. Rolling budgets. (6)
QUESTION 3 (25 MARKS)
Boats Namibia plc builds speed boats. Earlier this year the company accepted an order for 15
specialised "Crest” speed boats at a fixed price of N$1OO 000 each. The contract allows four months for
building and delivery of all the boats and stipulates a penalty of N$10 000 for each bought delivered
late.
The boats are built using purchased components and internally manufactured parts, all of which are
readily available. However there is only a small team of specialised technicians and boatyard space is
limited, so that only one boat can be built at a time. Four boats have now been completed and as Boats
Namibia plc. has no previous experience of this particular boat the building times have been carefully
monitored as follows:
Boat number Completion time (days)
1 10.0
2 8.1
3 7.4
4 7.1
Boats Namibia has 23 normal working days in every month and the first four boats were completed with
normal working. Management is now concerned about completing the work on time. The management
accountant’s estimate of direct costs per boat, excluding labour costs, is as follows: (SEE NEXT PAGE)
Page 3 of 5
N$’000
Purchased components 40
._.x U1Manufactured parts
Other direct expenses
OU‘Il°°|
Direct labour costs are N$2 500 per day for the normal 23 days per month. Additional weekend
working days at double the normal pay rates can be arranged up to a maximum of seven days per
month (making 30 possible working days per month in total).
Overheads will be allocated to the contract at a rate of N$3 000 per normal working day and no
overheads will be allocated for overtime working.
REQUIRED:
a.) Using the completion time information provided, calculate the learning rate showing all
workings. (6)
b.) Discuss the limitations of the learning curve in this type of application. (6)
0.) Calculate whether it would be preferable for Boats Namibia plc. to continue normal working or to
avoid penalties by working weekends. Support your calculations with any reservations or
explanations you consider appropriate. (13)
QUESTION 4 (25 MARKS)
Tsumeb Ltd is considering investing in a new machine in order to reduce operating costs over the next
five years.
Machines A and B are currently being considered, the details of which are as follows:
A B
N$ N$
Capital cost 600,000 800,000
Residual value 100,000 180,000
Annual cost savings 60,000 75,000
The above cost savings have been calculated after the deduction of depreciation on a straight-line
basis over the life of the investment.
Because of liquidity considerations, the managing director requires the project to have a payback
period of less than four years.
Page 4 of 5
The company's cost of capital is 10%, the discount factors for which are:
Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683
Year 5 0.621
REQUIRED:
a) Evaluate each of the machines A and B, using each ofthe following methods:
i. Payback period (4)
ii. Net present value (13)
iii. Accounting rate of return using the average capital invested (4)
b) Advise management, giving two reasons, as to which machine, if either, to purchase. (4)
END OF EXAMINATION PAPER
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