ACN3164/202/3/2008 ACN306Y/202/3/2008
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
E-mail
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
.
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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
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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)
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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]
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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
