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2.1 Choose ONE cost account for each of the following descriptions - NSC Accounting - Question 2 - 2018 - Paper 1
Question 2
2.1 Choose ONE cost account for each of the following descriptions. Write only the cost accounts next to the question numbers (2.1.1 to 2.1.4) in the ANSWER BOOK. -... show full transcript
Worked Solution & Example Answer:2.1 Choose ONE cost account for each of the following descriptions - NSC Accounting - Question 2 - 2018 - Paper 1
Step 1
Calculate: The value of the closing stock of raw materials of fabric using the weighted-average method
Answer
To find the closing stock of raw materials, we will use the weighted-average method. First, we find the total cost of the raw materials available for use during the year by adding the opening balance and purchases, then we divide this total by the total quantity available to find the average cost per unit.
Assuming the values are as follows:
- Total Cost: R2,607,000 (opening balance) + R23,700 (purchases) = R2,630,700
- Total Quantity: 3,900 units
Total closing stock = (Total Cost / Total Quantity)
Average Cost per Unit = R2,630,700 / 3,900 Closing Stock Value = (Closing Stock Quantity) x (Average Cost per Unit)
If the closing stock is 429 units, then:
Closing Stock Value = 429 x Average Cost per Unit = R429,000.
Step 2
Calculate: The value of direct/raw materials issued for production
Answer
The value of the direct/raw materials issued for production can be calculated as:
Direct Raw Materials Issued = Total Raw Materials Available - Closing Stock
Using the values: Total Raw Materials Available = R2,607,000 + R23,700 - R429,000
Therefore, Direct Raw Materials Issued = R2,178,000.
Step 3
Calculate: Correct factory overhead costs
Answer
Factory overhead costs need to be calculated by considering all indirect costs associated with the production process. Given that the factory overhead is R862,500, this value needs to be verified against actual expenditures.
If the overhead costs include items like utilities, maintenance, and labor, we should add them up to confirm the total of R862,500.
Step 4
Complete the Production Cost Statement on 31 March 2018
Answer
The Production Cost Statement is completed as follows:
Direct Materials Cost: R2,178,000
Direct Labour Cost: R3,522,000
Factory Overhead Costs: R862,500
Total Manufacturing Costs:
Total Manufacturing Cost = Direct Materials Cost + Direct Labour Cost + Factory Overhead
Total = R2,178,000 + R3,522,000 + R862,500 = R6,562,500
Work-in-process beginning of year: R147,500
Cost of Production: Work-in-process end = T + C - W
Apply final adjustments for work in process which will yield the total production costs.
Step 5
Give TWO reasons why the business should support local suppliers
Answer
- Reduced Import Costs: By sourcing materials locally, the business can minimize shipping expenses and import tariffs.
- Community Support: Supporting local suppliers fosters goodwill within the community and helps sustain local jobs.
Step 6
Calculate: Direct labour cost for the year ended 30 April 2018
Answer
The direct labour cost can be calculated based on the number of units produced and the cost per unit.
Given: Number of units = 331,500 and total direct labour cost = R2,506,140.
Direct Labour Cost per Unit = Total Direct Labour Cost / Number of Units.
Calculating gives approximately R7.56 per unit.
Step 7
Calculate: Break-even point for the year ended 30 April 2018
Answer
The break-even point can be determined using the formula:
Break-even Point (BEP) = Total Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
Total Fixed Costs = R3,102,500, Selling Price per Unit = R29.50, Variable Cost per Unit = R19.50.
Plugging in the values: BEP = R3,102,500 / (R29.50 - R19.50) = R3,102,500 / R10 = 310,250 units.
Step 8
Explain why the owner should be concerned about the break-even point. Quote figures.
Answer
The owner should be concerned about the break-even point due to its implications on profitability. For instance, the break-even point is 365,000 units, which exceeds the current sales output of 331,500 units. This indicates that the business is falling short and must increase production or sales to cover costs, risking losses.
Step 9
Explain why the owner would NOT be satisfied with the direct labour cost per unit. Quote figures.
Answer
The owner might not be satisfied because the direct labour cost has risen significantly over time. For example, if the last year’s cost was R6,500 and this year it jumped to R7,560, this is an increase of 35%. Such increases in labour costs erode profit margins and may necessitate adjustments in pricing or operational inefficiencies.
Step 10