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Which of the following is likely to be classified as a direct material cost of a motor car wheel? The cost of the quality inspection checks on the finished car wheels 2 the cost of operating the raw material stores in the factory 3 the metal used to manufacture a motor car wheel 4 the metal used to manufacture one of the tools used in the car wheel factory 4 Which of the following is the best definition of a variable cost? A variable cost is one that . Is directly traceable to an activity of the business for which the cost will be used 2 is associated with goods or services purchased, or produced, for sale to customers 3 changes with changes in the level of activity, over a defined period of time 4 is spread over a number of activities of the business for which costs are to be determined 5 In most companies, direct labor is treated as a cost. 1 product 18 2 period 3 fixed 4 sunk 6 Which of the following is a direct labor cost? The wages of an operative paid on the basis of output achieved 2 a bonus paid to the stores clerk the costs of the payroll accounting section 4 supervisors’ salaries in the factory 7 LIMN Ltd has the following data relating to its assembly plant for the year to 31 March R Material costs 1 000 000 Direct labor costs 500 000 Assembly plant indirect costs 200 000 In addition, the stores department has total costs of ROR 000, and spends 50% of its time servicing the assembly plant.
In year 7 there were 100 000 labor hours worked and 50 000 machine hours run in the assembly plant. What was the overhead cost per direct labor hour? 1 R 4. 00 2 R 2. 30 3 R 4. 60 4 R 2. 00 8 Which of the following is correct? Contribution = sales – variable costs 2 contribution gross margin ? fixed costs 3 gross margin = sales – variable costs 4 gross margin = contribution ? variable costs The following information applies to questions 9 and 10: Arbitrator Glass Products Limited manufactures three ranges of high quality paperweights – basic, standard and deluxe.
The accountant has prepared a draft budget for year 7: Basic Standard Deluxe Total ERROR ERROR ERROR ERROR Revenue 46 37 43 126 Material 16 12 13 41 Labor 20 15 540 Variable overhead 5 12 5 22 Fixed overhead 9 5 6 20 50 44 29 123 Profit/(loss) -4-7 14 3 2014 FAMILY/2 9 Fixed overheads are allocated to each product line on the basis of direct labor hours. The directors are concerned about the viability of the company, and are currently considering the cessation of both basic and standard ranges, since both are apparently losing money. If the directors close down only the manufacture of basic paperweights, what would the effect be on total profit? 1 Profit would increase by RE 000. 2 Profit would decrease by RE 000. 3 Profit would increase by RE 000. 4 Profit would increase by RI 3 000. 10 If the directors were to close down only the manufacture of standard paperweights, what would the effect be on total profit? 1 Profit would increase by RE 000. 3 Profit would increase by RE 000. 4 Profit would increase by RI 2 000. 1 1 The planned sales volume is 300 units per month.
The planned stock at the start of the month is 50 units, and the planned stock at the end of the month is 40 units. The cost per unit is RE. What is the amount of the purchases budget for the month? 1 RI 450 2 RI 550 3 RI 700 4 RI 750 Jenkins plans to sell a single product at ROR each. His expected volume of sales for the first two months in business from 1 March to 30 April in year 1 is as allows: March April Volume 300 units 250 units He sells his product for both cash and on credit terms.
He estimates that 30% of all sales will be for cash and the remainder will be on credit terms. Research has shown that, on average, 60% of trade debtors pay in the month following the month of sale, and 40% in the second month following the month of sale. 12 What would be the total cash inflow from customers in April? 1 RE 000 2 RE 600 20 3 RE 020 4 RE 700 Assignment 02 Part 2 Long questions 76 marks Question 1 20 marks A company produces three products that use the same manufacturing facilities.
The details of the selling price and costs of each product are as follows: Product X Product Y Product Z Expected sales next year, in units 10 000 10 000 10 000 Direct labor hours per unit 2 3 4 ERR selling price per unit 36 51 65 Variable costs per unit 20 30 35 Allocated fixed costs based on the direct labor hours used 10 15 20 Profit per unit 66 10 The fixed overhead is forecast as RARE 000. The fixed overhead cost rate is RE per direct labor hour, calculated as RARE 000/90 000 = RE. It is expected that 10 000 units of each product will be sold next year.
Required 1 Calculate the contribution per unit made by each of the three products. Calculate the expected profit of the company next year. 3 If R 100 000 is spent on an advertising campaign, the sales of each product are expected to increase by 10%. Show by calculation whether the advertising campaign would increase the firm’s profit. 4 If only 50 000 labor hours are available, explain with reasons which products should be made to maximize the company’s profit. 5 Calculate the maximum profit achievable in 50 000 labor hours.
Question 2 16 marks Smith plans to sell a single product at ROI each. His expected volume of sales for his first two months in business from 1 January to 28 February in year 1 is as allows: January February Volume 200 units 400 units He sells his product for both cash and credit terms, and estimates that 20% of all sales will be for cash and the remainder will be on credit terms. Research has shown 2014 Family/2 21 that, on average, 60% of trade debtors pay in the month following the month of sale and 40% in the second month following the month of sale.
The cost of the product to Smith will be RE per unit. Units will be bought in the month of sale and paid for in the following month. It is expected that expenses will be incurred at the rate of RARE per month, half f which will be paid for in the month in which they are incurred and half will be paid for in the following month. Required Prepare a statement of budgeted cash flows for each of the months of January and February Question 3 40 marks Anderson Company has been set up to manufacture electric grills under license.
Selling prices have been based on competitive products already well established in the market. The current year’s budget has been set as follows: High heat Quick Basic model toaster model 3000 10 oho 12 oho Planned production and sales R OR Selling price per unit 500 300 300 Direct materials per unit 100 80 80 Direct labor per unit 120 100 20 Variable production overhead per unit 80 40 50 Fixed production overheads of RARE 000 are budgeted for the entire production process.