DEPARTMENT OF MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING TECHNIQUES AND AID IN DECISION-MAKING

TUTORIAL LETTER 202/2008 FOR ACN3164 AND ACN306Y BOTH SEMESTERS Dear Student Enclosed please find the solution in respect of assignment 02/2008. It is in your own interest to work through the suggested solution in conjunction with the assignment and your own answer.

With kind regards Telephone number

Room number

Mrs P R Berry

012 429-4415

1-57

[email protected]

Mrs A M Raath

012 429-4490

1-52

[email protected]

LECTURERS : ACN3164 AND ACN306Y

2

QUESTION 1 (18 marks) MULTIPLE CHOICE QUESTIONS 1.1

Evaluation of statements Statement 1 is false as marginal costing techniques are the most effective way of determining the product mix under these circumstances. Linear programming techniques will result in the same answer, but are much more time consuming, rendering them less suitable. Statement 2 is false as the market should merely limit production to the extent that the accumulation of stock is avoided, in order to optimise net income. Statement 3 is false as there is no need for ranking where no constraints of production factors exist. The maximum number of units that can be sold of both products, must be manufactured. Statement 4 is false as the ranking must be determined according to the product earning the highest marginal income per constraint. Option (e) is therefore correct.

1.2

(3)

Marginal income per labour hour - Product B Marginal income per unit R20 Units per hour 40/60 Marginal income per hour (R20 x 60/40) R30 Option (a) is therefore correct.

1.3

(3)

Material equation for linear programming 1,2 A + 2,5 B ≤ 30 000 Option (c) is therefore correct.

1.4

(3)

Optimal product mix of Product B Material

:

1,2 A + 2,5 . B

≤ 30 000

➀

Labour

:

. 0,5 A + 0, 66 B ≤ 10 000

➁

➀ x 0,5

0,6 A + 1,25

B ≤ 15 000

➂

➁ x 1,2

0,6 A + 0,80

B ≤ 12 000

➃

➂ -➃

0,45 B ≤ 3 000 B ≤ 6 666,66 • 6 666

.

3

ACN3164/202 ACN306Y/202

QUESTION 1 (continued) Substitute B ≤ 6 666 in ➀ : 1,2 A + 2,5 (6 666) ≤ 30 000 1,2 A ≤ 30 000 - 16 665 A ≤ 11 112,5 But A is limited to 10 000 Substitute A = 10 000 in ➀ : 1,2 (10 000) + 2,5 B = 30 000 2,5 B = 30 000 - 12 000 B = 18 000/2,5 B = 7 200 Substitute A = 10 000 in ➁ .: 0,5 (10 000) + 0,66 B = 10 000 . 0,66 B = 10 000 - 5 000 . B = 5 000/0,66 B = 7 500 Therefore 7 200 units of Product B should be manufactured. Option (c) is therefore correct. 1.5

(3)

Break-even selling price Let the selling price per unit = ̃ Break-even point

=

=

Fixed costs Marginal income per unit

R160 000 20 000 (χ − R10)

x

100 1

R160 000

=

20 000 (̃ - R10)

R160 000

=

20 000̃ - R200 000

R160 000 + R200 000

=

20 000̃

̃

=

R360 000 ÷ 20 000

̃

=

R18

The break-even selling price would be R18.

4

QUESTION 1 (continued) OR Sales

=

Variable costs + Fixed costs + Profit

20 000̃

=

R10 (20 000) + R160 000 + 0

20 000̃

=

R360 000

̃

=

R360 000 ÷ 20 000

̃

=

R18

Option (b) is therefore correct. 1.6

(3)

Required selling price Let the required selling price = ̃ Sales

= Variable costs + Fixed costs + Profit

40 000̃

= [40 000 x R(2 + 1 + 0,60) + (10% x 40 000̃)] + R60 000 + [R2,82 (40 000)]

36 000̃

= R316 800

̃

= R8,80

The required selling price would have to be set at R8,80 per unit. Option (e) is therefore correct.

(3) [18]

QUESTION 2 (30 marks) MR LEISURE Marginal income per unit

Two-bed-

Three-bed-

room unit

room unit

R

R

Selling price

774 000

Less: Variable costs

305 000

381 000

Building cost

180 000

230 000

Cost of land

20 000

Sales commission

75 000

90 000

Furnishings

30 000

35 000

469 000

545 000

Marginal income per unit

➀

➁

926 000

26 000

➀

➁

5

ACN3164/202 ACN306Y/202

QUESTION 2 (continued) Calculations: ➀

Selling price

R

High season (10 x R30 000) (10 x R35 000)

300 000 350 000

Medium season (12 x R20 000) (12 x R22 000)

240 000 264 000

Low season (26 x R 9 000) (26 x R12 000)

234 000 312 000

Selling price per unit ➁

R

774 000

926 000

100m2 R200

130m2 R200

R20 000

R26 000

Cost of land Square metres of land used per unit Cost per square metre Cost per unit (100 x R200) (130 x R200)

(12) Test for constraints

Units Two-bedroom unit Three-bedroom unit Required Available Shortage

25 15

Land m2 per Total m2 unit 100 2 500 130 1 950 4 450 4 250 200

Units 25 15

Financing Rand per unit 180 000 230 000

Total Rand 4 500 000 3 450 000 7 950 000 7 000 000 950 000

The land available and the financing are both constraints.

(6)

Marginal income per constraint Land Marginal income per unit

Units per m2

Financing

Marginal income per m2

Ranking Marginal income per unit

Units per rand

Marginal income per rand

Ranking

Two-bedroom unit

469 000

1/100

4 690

1

469 000

1/180 000

2,61

1

Three-bedroom unit

545 000

1/130

4 192

2

545 000

1/230 000

2,37

2

6

QUESTION 2 (continued) The two-bedroom units rank highest in terms of both constraints, therefore the maximum number of two-bedroom units that could be sold should be built, and the remaining land and financing, if any, used to build three-bedroom units. (7) Optimal product mix

Available Less: Required for building of two-bedroom units Available for building of three-bedroom units

Land m2 4 250 2 500 1 750

Financing R 7 000 000 4 500 000 2 500 000

13,46

10,869

Number of three-bedroom units

1 750 2 500 000 ; 130 230 000 Limited to 10 units

Therefore 25 two-bedroom units and 10 three-bedroom units should be built.

(5) [30]

QUESTION 3 (15 marks) STARLIGHT CC (a)

Number of units manufactured during January 2008

Total production cost

= Material + Labour + Semi-variable costs + Fixed costs

Let the number of units

=̃

ˆ 487 418,75 =

2 550χ + 10 000χ + 0,3125χ + (21 400 + 512,50) 100

ˆ 125,8125χ =

465 506,25

ˆ

3 700

χ =

100

3 700 units were manufactured during January 2008.

(9)

7

ACN3164/202 ACN306Y/202

QUESTION 3 (continued) (b)

Amount budgeted for production costs in respect of March 2008 R Variable costs

3 800 × R2 550 100 3 800 - Labour Material × R10 000 100

- Material

96 900,00 380 000,00

- Semi-variable costs (3 800 x R0,3125) - Fixed costs

1 187,50

(R21 400 + R512,50)

21 912,50 500 000,00 (6) [15]

QUESTION 4 (24 marks) MILLING LIMITED (a)

Break-even sales in tons Break-even sales in tons

=

Fixed costs Marginal income per ton

=

R5 800 ➀ R58,00 ➁

=

100 tons

Calculations: ➀

Fixed costs R Cleaning Pressing Milling Selling and administrative expenses

500 2 000 1 500 1 800 5 800

8

QUESTION 4 (continued) ➁

Marginal income per ton Income per ton soya beans

R 200,00

Oil (100 litres x R1,19 per litre) Flour (400 kg x R200/1 000 kg) Chaff (100 kg x R10/1 000 kg)

119,00 80,00 1,00

Less: Variable costs

142,00 118,00 1,50 1,80 0,80

Input cost Cleaning Pressing (R2 x 900/1 000 kg) Milling (R2 x 400/1 000 kg) Selling and administrative expenses - Oil (10% x R119) - Flour (10% x R 80)

11,90 8,00

Marginal income

58,00 (15)

(b)

Break-even sales in rand Break-even sales in rand

=

Fixed costs Marginal income ratio R5 800 ➀

=

0,29

=

R20 000

Calculation: ➀ Marginal income ratio

= =

= (c)

Marginal income per unit Selling price

R58 R200 0,29

(6)

Margin of safety ratio Margin of safety ratio =

Sales - Break - even sales

=

Sales 150 - 100 100 × 150 1

=

33⅓%

×

100 1

(3) [24]

9

ACN3164/202 ACN306Y/202

QUESTION 5 (27 marks) KINGSLEY DRUG COMPANY DECISION TREE ➀

R480 000 - R180 000*

= R300 000

➁

R360 000 - R180 000

= R180 000

➂

R180 000 - R180 000

= Nil

➃

R300 000 - R180 000

= R120 000

➄

R900 000 - R180 000

= R720 000

➅

(R300 000 x 0,4) + (R180 000 x 0,6) = R228 000

➆

(R120 000 x 0,5) + (R720 000 x 0,2) = R204 000

➇

(R228 000 x 0,5) + ((R90 000) x 0,5) =

R69 000

* Development cost

Conditional Profit Price R480 000

R 300 000 c

0,4 R120 000

R228 000 h

Selling rights

Selling rights

R120 000 R228 000 Develop product

Market Product

Success R69 000 j

R204 000 i

Sbd/ ACN3164_2008_TL_202_3_E.doc

Return R180 000

0,3

(R90 000)

Nil e

120 000 f

0,5 Return R900 000

Failure

180 000 d

0,6

Return R300 000

0,5

0,5

Price R360 000

0,2

720 000 g