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.

Page 1 of 5

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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