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BERGVIEW MANUFACTURERS Amounts extracted from the records on 29 February 2020 R Salary: factory foreman 150 000 Depreciation on factory equipment 145 000 Direct material cost 230 000 Direct labour cost 1 209 300 Indirect material purchased Insurance 600 000 x 30 000 Water and electricity Rent expense 113 000 Sales 6 000 000 Cost of sales (mark-up on cost: 60%) Insurance is shared by the factory, administration and the selling department in the ratio 3 : 2 : 1 - NSC Accounting - Question 1 - 2020
Question 1
BERGVIEW MANUFACTURERS Amounts extracted from the records on 29 February 2020 R Salary: factory foreman 150 000 Depreciation on factory equipment 145 000 Direct... show full transcript
Worked Solution & Example Answer:BERGVIEW MANUFACTURERS Amounts extracted from the records on 29 February 2020 R Salary: factory foreman 150 000 Depreciation on factory equipment 145 000 Direct material cost 230 000 Direct labour cost 1 209 300 Indirect material purchased Insurance 600 000 x 30 000 Water and electricity Rent expense 113 000 Sales 6 000 000 Cost of sales (mark-up on cost: 60%) Insurance is shared by the factory, administration and the selling department in the ratio 3 : 2 : 1 - NSC Accounting - Question 1 - 2020
Step 1
Factory overhead cost note
Answer
The factory overhead consists of various expenses incurred in the manufacturing process other than direct labor and materials. For this question:
- The salary of factory foreman: R150,000
- Depreciation on factory equipment: R145,000
- Indirect material cost: R31,200 (calculated from the given amounts)
- Insurance: R600,000
- Water and electricity for February: R101,600 (adjusted for outstanding charges)
- Rent expense: R90,400 (allocated based on space)
The total cost of production would be the addition of all these overhead costs.
Step 2
1.3.1 Explain why the change in units produced affected the fixed costs.
Answer
The fixed costs remain constant regardless of production levels. Therefore, a decrease in production will mean that the fixed costs per unit increase, as these costs are spread over fewer units. In summary:
- Fixed costs do not vary with production levels.
- Decreased production elevates the cost per unit.
Step 3
Step 4
1.3.3 Explain why the business should not be satisfied with the level of production and the break-even point. Compare and quote figures for both years.
Answer
The business produced 54,000 units in 2019 against a break-even point of 56,976 units, resulting in a deficit of 2,976 units. Comparatively, production in 2018 was at 50,976, with a break-even point of 51,000, showing a slight improvement yet hovering near the break-even threshold.
Consequently, both years indicate insufficient production relative to the break-even points.
- 2019: 54,000 produced | BEP: 56,976 | Deficit: 2,976 units.
- 2018: 50,976 produced | BEP: 51,000 | Near break-even.
Step 5