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2.1 CONCEPTS Indicate whether the following statements are TRUE or FALSE - NSC Accounting - Question 2 - 2016 - Paper 1
Question 2
2.1 CONCEPTS Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question number (2.1.1-2.1.3) in the ANSWER BOOK. ... show full transcript
Worked Solution & Example Answer:2.1 CONCEPTS Indicate whether the following statements are TRUE or FALSE - NSC Accounting - Question 2 - 2016 - Paper 1
Step 1
2.2.1 Prepare the following notes to the Production Cost Statement: Direct labour cost
Answer
To prepare the Direct Labour Cost, we need to sum the basic salary, overtime, and UIF contributions:
- Basic salary = Number of employees (14) x Basic salary per employee (R7 000) x 12 months = R1 176 000
- Overtime = Total overtime hours for the year (14 employees x 144 hours) x Overtime rate (R65) = R91 440
- UIF contributions = 1% of Basic salary = R11 760
Total Direct Labour Cost = R1 176 000 + R91 440 + R11 760 = R1 279 200.
Step 2
2.2.1 Prepare the following notes to the Production Cost Statement: Factory overhead cost
Answer
To prepare the Factory Overhead Cost, we account for the following components:
- Indirect materials = R15 100
- Salaries (foreman) = R156 000
- Electricity and water = R104 000
- Rent expense = R115 200 (R115 200 / 500)
- Insurance = R27 720 (R27 720)
- Depreciation (factory plant and machinery) = R641 200
Total Factory Overhead Cost = R15 100 + R156 000 + R104 000 + R115 200 + R27 720 + R641 200 = R1 059 220.
Step 3
2.2.2 Prepare the Production Cost Statement.
Answer
The Production Cost Statement should summarize all costs involved in the production process:
Star Wheels Manufacturers
Production Cost Statement For the year ended 31 December 2015
- Direct labour cost: R1 279 200
- Factory overhead cost: R1 059 220
Total Production Cost: R2 338 420
Step 4
2.3.1 Calculate the break-even point for the year ended 31 October 2015.
Answer
The break-even point can be calculated using the formula:
ext{Break-even point} = rac{ ext{Fixed Costs}}{ ext{Selling Price} - ext{Variable Cost}}
Given:
- Total Sales = R1 792 000
- Variable Costs = R736 000
- Selling Price per unit = R28
- Variable Cost per unit = R16
Thus, the break-even point is:
ext{Break-even point} = rac{R736 000}{R28 - R16} = 61 334 ext{ units (approx).}
Step 5
2.3.2 Should the business be satisfied with the number of units that they produced and sold during the current financial year? Explain. Quote figures.
Answer
No, the business should not be satisfied. They sold 64 000 units, which is 2 666 units more than the break-even point of 61 334 units. However, this is a marginal buffer above the break-even, indicating that any decrease in sales could lead to losses.
Step 6
2.3.3 Give TWO possible reasons for the increase in the direct material cost per unit in the current financial year.
Answer
- Inflation: The rising prices of raw materials can contribute significantly to the increase in costs.
- Supply Chain Issues: Possible storage costs or inefficiencies in obtaining raw materials could increase expenses.
Step 7
2.3.4 Give TWO valid reasons why he should not do this.
Answer
- Market Competitiveness: Reducing the amount in each box could lead to customer dissatisfaction, allowing competitors to capture market share.
- Brand Integrity: Decreasing quantity while maintaining price can damage the brand's reputation, as customers feel they are receiving less value.