I'IHITIIBIFI UI'IIVERSITY

0F SCIEI'ICE Fil'ID TECHNOLOGY

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE

QUALIFICATION: BACHELOR OF ACCOUNTING

QUALIFICATION CODE: 07BACC LEVEL: 6

COURSE NAME: COST AND MANAGEMENTCOURSE CODE: CMA61ZS

ACCOUNTING 202

SESSION: NOVEMBER 2017 PAPER: THEORY AND CALCULATIONS

DURATION: 3 HOURS MARKS: 100

FIRST OPPORTUNITY EXAMINATION QUESTION PAPER

EXAMINER(S) Mr. H. Namwandi and Mr. A. Makosa

MODERATOR:Mr. K. Boamah

INSTRUCTIONS

This question paper is made up of five (5) questions.

Answerfl the questions and in blue or black ink.

Start each question on a new page in your answer booklet and show all workings.

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.

PENN?

THIS QUESTION PAPER CONSISTS OF 5 PAGES (Excluding this front page)

Question 1 (20 marks)

Tenca Limited produces Product A that is used in construction industry for the local Namibian market.

The company produces Product A through a standard marginal costing system. The followinginformation relates to the budgeted and actual results for the month of October 2017.

Budget Actual

Sales/production in units 6 000 5 500

Total sales revenue NSGOO 000 N$660 000

Total materials (kgs) 24 OOOkgs 24 750kgs

Material cost N$240 000 N$222 750

Total labour hours 18 000 hours 15 125 hours

Total labour cost N$216 000 N$211 750

Fixed production overheads N$1OO 000 N$110 000

Requirements:

a) Prepare the standard cost card for one unit of Product A (2 marks)

b) Prepare a statement that reconciles the budget contribution to the actual profit for the

month of October 2017. Your answer should show all the relevant variances in as much detail

as possible. (11 marks)

c) The management of Tenca Limited thinks their current usage of attainable standards is not

giving them a cost advantage that they would get if they use ideal standards. Explain the

meaning of the terms attainable standards and ideal standards. (4 marks)

d) Standard costing has been criticised to be focusing more on costs rather than on quality and

other aspects valued by customers. However, a company operating a standard costing system

may reap some advantages over those that do not use it. State any three advantages of

operating a standard costing system. . (3 marks)

Question 2 (21 marks)

Windhoek Machinery produces and sells custom-made concrete drills. A local construction company,

Namibia Builders, has sent an enquiry to Windhoek Machinery for ten (10) concrete drills. Namibia

Builders is a regular customer of Windhoek Machinery and are willing to pay up to a maximum of

N$70 000 for each concrete drill.

The following information relates to the production ofthe concrete drills:

1. Each drill requires ten (10) units of Material A. This material is in regular use by the company.

Currently, there are 120 units of Material A in inventory. The original cost of these materials

was NS 1 500 per unit. The material can be replaced at a cost of N$1 700.

Page 1 of 5

2. Five (5) units of Material B are also needed to produce one unit of the concrete drill. There

are 50 units of Material B already in inventory. These units were purchased a few months ago

for the production of another type of drill that has been discontinued. The Material B in

inventory was purchased at NSZ 000 per unit and can be currently replaced at a price of

N51 600 per unit. The units in inventory can be sold to neighbouring companies at a price of

N51 400 per unit.

3. Each concrete drill will use eight (8) units of Material C, a material that the company has never

used. The purchase cost per unit of Material C is N$2 500.

4. Ten (10) skilled hours, which are paid NSZOO per hour, are required for each unit of the drill.

The employees possessing these skills are part of the permanent staff. Currently, the

company has an excess of 100 hours of skilled hours per month.

5. 20 unskilled labour hours are required per drill. The rate for unskilled labour is N$120 per

hour and these employees are engaged on causal basis.

6. The job would use a supervisor who is currently employed with the company and has

necessary experience in managing similar production. The supervisor is currently paid

N$4OO 000 per annum and should he be used in this concrete drill job, there is need for his

replacement at a cost of NS70 000 for the duration of the contract.

7. Each concrete drill will be processed for 15 hours on the factory equipment. If the company

does not accept the concrete drill order, the factory equipment could be sub contracted to a

neighbouring company that have promised to pay N51 000 per each hour used. The

management accountant of Windhoek Machinery has estimated the depreciation for using

the factory equipment to produce ten (10) concrete drills to be N$40 000.

8. Variable overheads are allocated to products at a rate of NSSOO per skilled labour hour.

9. Fixed production overheads are absorbed at a rate of NS3OO per skilled labour hour.

10. The company’s policy is to add 20% of production cost as an administration allowance

associated with accepting a job

11. N56 000 has been incurred to date by the planning department of Windhoek Machinery in

order to assess the possibility of accepting this order.

Requirements:

3) One of the senior production managers of Windhoek Machinery has stated in a recent

meeting ”it is important in the short-run, to only undertake projects that are generating a

profit." To what extent do you agree or disagree with the above statement. (4 marks)

b) Using relevant costing principles advise whether Windhoek Machinery should undertake the

contract. Please note, for any cost that you are going to include or exclude as part of the

Page 2 of 5

contract quotation, you should provide an explanation for doing so. (13 marks)

c) While financial implications of a decision are important, qualitative factors should also be

considered in short—term decision—making. Explain, with examples the importance of

qualitative factor in short run decision making. (4 marks)

Question 3 (20 marks)

The fresh fruit market decided to provide a special packaging of apples and pears. They decided on

two packages, namely Package X, consisting of 10 apples and 30 pears, and Package Y, consisting of

15 apples and 20 pears. There are 50 boxes ofapples and 100 boxes of pears available. The manager

thinks that all the Y—packages would sell, but that only 300 ofthe X-packages would sell. According to

a contract with the local hospital, at least 50 units of the X-packages, and 80 units of the Y-packages

must be supplied.

The following cost information for the packages is available:

X-Pack Y-Pack

NS NS

Selling price per package 18 30

Less cost of sales:

Costs of the fruit 5 12

Packaging material 1 2

Direct labour 2 3

Variable packaging costs 1 2

Fixed packaging costs 2 3

Gross profit per unit 7 8

Less sales & administrative costs:

Variable 2

Fixed 2 3

Net profit per unit 4 3

Note:

The amount of apples per box is 180.

The amount of pears per box is 150.

Requirement:

a) Compute the contribution for each product. (3 marks)

b) Use the graphical method to determine the optimum combination of the packages that will

maximise the fruit market’s profit, by determining the profit at each intersect within the

feasible region. (17 marks)

Page 3 of 5

Question 4 (26 marks)

Long Island is a technology company that produces a component that is used in the assembly of smart

phones. The company is based in Windhoek and is in the process of preparing its budget for the year

2018. You have joined the company as an intern in management accounting section of their finance

department. The following information has been made available.

1. The company expects to have an overdraft of NSlOO 000 by end of December 2017.

2. The sales units per each quarter are expected to be as follows:

Sales units

Quarter 1 4 000

Quarter 2 4 100

Quarter 3 4 600

Quarter 4 5 500

The company expects to sell its component at N$120 per unit. Seventy percent (70%) of the

sales are for cash. Thirty percent, (30%) of the cash sales are to wholesalers who are granted

5% cash discount. The rest are on credit. With the exception of 5% for bad debts, the balance

of the credit sales is collected in the same quarter as the sale.

3. Long Island Company is planning the following production schedule for 2018:

Units

Quarter 1 4 600

Quarter 2 5 500

Quarter 3 5 700

Quarter 4 6 200

4. Each component requires 0.6 hours of direct labour. Employees are paid N520 per hour in

cash.

5. Direct materials purchases for each quarter are expected to be as follows:

NS

Quarter 1 230 000

Quarter 2 250 000

Quarter 3 260 000

Quarter 4 290 000

Forty percent (40%) of the direct materials is purchased by cheque and the balance is

purchased on credit. Seventy five percent (75%) of the materials purchased on credit are paidfor in the quarter of acquisition, and the remaining 25% is paid for in the following quarter.

The purchases for the fourth quarter of 2017 are expected to be N$340 000.

6. Fixed production overheads will total NSZOO 000 for each quarter. Of this, N$20 000

represents depreciation. Fixed overheads are paid for in the quarter in which they are

incurred.

7. Variable production overheads are expected to amount to N$5 per direct labour hour. An

increase of 10% is expected on 01 October 2018. These variable overheads are paid for in the

quarter in which they are incurred.

Page 4 of 5

8. All selling and administrative expenses are paid for in the quarter in which they are incurred.

Fixed selling and administrative expenses will total N$50 000 per quarter

9. Variable selling and administrative expenses are budgeted at N56 per unit sold.

10. An interim dividend of 7 cents per share is expected to be paid at the end of the second

quarter. The issued share capital is expected to amount to N5800 000 on 31 December 2018

consisting of:

- 250 ordinary shares that were sold for N$2 each when the company commenced

operations on 1 July 2015; and

- 100 000 ordinary shares that are expected to be sold at N$3 each on 01 July 2018.

Requirement:

a) Prepare Long Island’s cash budget for each quarter of 2018. Show all workings (23 marks)

b) Advise the management of Long Island on how they can improve their cash management.

(3 marks)

Question 5 (13 marks)

A manufacturing company has developed a new product. The time it took to manufacture the first

unit was 48 minutes. From previous experience, it is expected that an 80% learning curve will apply

for the first six months of production. By the end of six months, the total number of units will have

reached 2 048. After that, the time per unit is expected to remain constant.

The index of learning (b) = log 08/ log 2 = - 0.3129

Requirement:

a) Calculate the time it will take to manufacture the 8th unit. (5 marks)

b) Give two reasons why the time it takes for the 2 O49th unit may be longer than expected.

(2 marks)

c) Explain why it is important to consider the learning curve effect when determining the

terms of the gain sharing agreement with employees. (6 marks)

End of exam question paper

Page 5 of 5