MAC4861 2025 Solution

(a) Critically evaluate the quarterly budgeted gross profits per unit of both
products and advise the board on which product performed better. 8

(Calculation: 4 Marks; Discussion: 4 Marks)

Assume no changes to the existing costing systems and methods
1 9
Communication skills – Clarity of expression
The communication mark is awarded if the student concludes which product to select
based on the calculation

BPM FT
R R Marks
Sales - BPM [R 423.47 x (50 000 x 3 = 150’)] 63 520 500 ½(c)
Sales - FT [R 370.99 x (40 000 x 3 = 120’)] 44 518 800 ½(c)
Less: Cost of sales 30 700 000 21 490 000
Direct Material cost (Given) 9 200 000 6 750 000
Packaging (Given) 3 500 000 1 580 000
Total production overheads (Given) 18 000 000 16 128 000
2(c)
Do not
award mark
if they
included
Sales and
distribution
costs as
part of GP
Gross profit 32 820 500 20 060 800 calc

Gross profit per device

BPM - (R32 820 500/150 000) R218.81 ½(c)
FT - (R20 060 800/120 000) R167.17 ½(c)

Alternative Gross Profit per device calculation

Sales - BPM [R 423.47 x (50 000 x 3 = 150’)] 423.47 ½(r/w)
Sales - FT [R 370.99 x (40 000 x 3 = 120’)] 370.99 ½(r/w)
Less: Cost of sales 204.66 203.82
Direct Material cost (Given)
BPM (R9 200 000/50 000 x 3 = 150’) 61.33 1(c)
Allocate the
FT (R6 750 000/40 000 x 3 = 120’) 56.25 mark if
Packaging (Given) students
divide by
BPM (R3 500 000/50 000 x 3 = 150’) 23.33 units to get
FT (R1 580 000/40 000 x 3 = 120’) 13.17 to a per-
unit
Total production overheads (Given) amount.
BPM (R18 000 000/50 000 x 3 = 150’) 120
FT (R16 128 000/40 000 x 3 = 120’) 134.4
2(c)
Do not
award mark
Gross profit per device if they
included
Sales and
distribution
R218.81 R167.17 costs as

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MAC4861 2025 Solution

part of GP
calc

Gross profit margin per device

BPM - (R32 820 500/R63 520 500) 51.67% ½(c)
FT - (R20 060 800/R44 518 800) 45.06% ½(c)

Note that the available marks for calculations are 5 marks

Conclusion
• Based on the calculation, BPM has a higher gross profit per device on a quarterly and
per-unit basis. Although BPM and FT will be making a profit on a quarterly and a per-
unit basis. (1)
• BPM has a higher gross profit margin than FT (51.67% vs 45.06%) even though BPM
incurs more costs than FT, which could be an indication of a cost allocation issue. (1)
• BPM, therefore, appears to be performing better from a budget perspective. 3(d)
• The board should consider reducing costs, increasing the selling price or
encouraging sales of FT by using marketing strategies like penetration pricing. (1)
Critical discussion Cost structure
• BPM consumes the resources at a higher rate than FT and, as a result has higher
production and administrative costs than FT. (1)
• DHT will have to revise the current costing system so that costs can be allocated
more accurately between the two products. (1)
• They can consider a costing system like activity-based costing (ABC) as this method
allocates costs based on activities. (1)
Available 10 marks, Communication mark 1, Max 9 marks

(b)
Assuming activity-based costing is implemented, calculate the fixed
overhead cost allocations for the products and advise how this would 9
affect the decision made in part (a). .
1 10
Communication skills – Layout and structure
Award communication mark if calculation only includes production overheads and there is
a conclusion
Step 1: Calculate fixed production overhead using high-low method – Budget.

WORKING 1: Variable cost per unit BPM FT Marks

High-low method for variable production overheads R R
Total production overheads @ 85 000 units (Highest) 7 680 000 Given
Total production overheads @ 20 000 units (Lowest) (4 560 000) Given
Total production overheads @ 55 000 units (Highest) 6 096 000 Given
Total production overheads @ 15 000 units (Lowest) (4 176 000) Given
3 120 000 1 920 000 1(r/w)
Units
- Highest (Given) 85 000 55 000
- Lowest (Given) (20 000) (15 000)
65 000 40 000 1(r/w)

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MAC4861 2025 Solution

R R
Variable production overhead cost per unit
= R3 120 000 / 65 000 48.00 ½(c)
= R1 920 000 / 40 000 48.00 ½(c)
WORKING 2: Fixed costs
High-low method for fixed production overheads
Total quarterly production overheads 18 000 000 16 128 000 Given
Variable quarterly production overheads
(50 000 x 3) x R48) (7 200 000)
(40 000 x 3) x R48) (5 760 000)
Fixed quarterly production overheads 10 800 000 10 368 000
½(c) ½(c)

Fixed production overhead using high-low method – Budget

Total FMO Marks
From Part (c)
Fixed quarterly production overheads (10 800 000 + 10 368 000) 21 168 000 ½(c)
Note that some students may have done the High-low calculation in part (a) make sure to
award the 4 marks available for working of Fixed overheads in part (a)

Step 2: Assign fixed production overheads to activities

Total
quarterly
Activities
FMO
Percentage allocation R
Material handling cost 20% x 21 168 000 4 233 600 ½(c)
Quality Inspection 25% x 21 168 000 5 292 000 ½(c)
Machine set-up cost 55% x 21 168 000 11 642 400 ½(c)
21 168 000

Step 3: Cost driver calculations

Activity driver Total (BPM) (FT) Marks

Number of inspections done 3 500 times 2 500 times 1 000 times Given
Number of production runs 1 500 runs 1 000 runs 500 runs Given
Number of times raw materials are 500 times 400 times 100 times Given
transferred to production

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 MAC4861 2025 Solution

Step 4: FOH Allocation

Allocation of Basis Total Fixed BPM workings Fixed quarterly FT workings Fixed quarterly Marks
overheads quarterly production production
production overheads overheads
overheads BPM FT
Material Number of times raw
handling cost materials transferred
to production 4 233 600 R4 233 600 x 400/500 3 386 880 R4 233 600 x 100/500 846 720 1(c)
Quality Number of
Inspection inspections done 5 292 000 R5 292 000 x 2 500/3 500 3 780 000 R5 292 000 x 1 000/3 500 1 512 000 1(c)
Machine set- Number of
up cost production runs
11 642 400 R11 642 400 x 1 000/1 500 9 313 920 R11 642 400 x 500/1 500 2 328 480 1(c)
Total 21 168 000 16 480 800 4 687 200

Units produced under normal 150 000 Units produced under 120 000
operating capacity normal operating capacity
Fixed production overhead 109.87 Fixed production 39.06 1(c)
rate per device overhead rate per
device

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MAC4861 2025 Solution

Discussion relating to the fixed production overheads per device between ABC and the
Traditional method
BPM FT Marks
R R
Fixed production overhead cost per device
based on ABC calculation above 109.87 39.06

Based on Traditional Absorption Costing

Fixed production overhead cost per device
BPM: R10 800 000 / 150 000 72.00
FT: R10 368 000 / 120 000 86.40

Calculation of variance or discussion that

compares the cost allocation between the 37.87 (47.34) 1(c)
two costing methods
Award the 2 half marks if student made a comparison between Gross profit calculated
using ABC and the one calculated in part (a)
Conclusion
1. The product cost allocation based on ABC results in an increase in the cost of 1(d)
one device of BPM with R37 .87. There is a decrease in the cost of one
device of FT with R47.34.
2. If selling prices of both products do not change, FT will show a higher gross 1(d)
profit R214.51 (R167.17 +47.34) than BPM R180.31 (R218.18 -R37.87).
3. This more accurately reflects the observation that BPM consumes resources
at a higher rate than FT.
4. Based on ABC, FT is more profitable and, therefore, performs better than
BPM.
5. As a result of the above, the advice given in part (a) will be revised.

Available 8 marks, Communication mark 1, Max 9 marks

(c) Using the budgeted quarterly break-even point for each product as of 31 17
March 2025, discuss the two products' profitability.

(Calculation: 15 Marks; Discussion: 2 Marks)

Quarterly Break-even point for DHT for the quarter ended 31 March 2025

BPM FT
R R Marks
Sales price per device 423.47 370.99 Given
Less: Variable costs (see WORKING 1) (162.67) (143.81)
Contribution per device 260.80 227.18 1(c)
Award provided
no fixed cost
included as part
of calc

Weighted Average contribution

Budgeted quarterly Sales volume
BPM [50 000 units x 3 = 150 000]
FT [40 000 units x 3 = 120 000}

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MAC4861 2025 Solution

Total units (150 000 + 120 000) = 270 000 units

Weighted average contribution
BPM [R260.80 x 150 000/270 000] 144.89 ½(r/w)
FT [R227.18 x 120 000/270 000] 100.97 ½(r/w)
Total Weighted Average Contribution
(R144.89 + R100.97) =R245.86 245.86 Award weighted
average
contribution/
Contribution
margin mark if
calculated in
total for both
products not
individually.

Fixed costs
BPM [R10 800 000 + R4 500 000] 15 300 000
FT [R10 368 000 + R3 167 000] 13 535 000
Total Fixed costs
(R15 300 000 + R13 535 000) (See WORKING 2) 28 835 000 1(c)

Breakeven point
[R28 835 000/245.86)
= 117 282.02 ½(c)
≈ 117 283 Rounded up

Breakeven point in devices per quarter

BPM [117 282.02 x 50 000/90 000] 65 156.68 ½(c)
Rounded up 65 157 ½(c)
FT [117 282.02 x 40 000/90 000] 52 125.34 ½(c)
Rounded up 52 126 ½(c)

Conclusion:
The monthly budgeted production and sales level of 50 000 (BPM) devices and 40 2(c)
000(FT) devices for FT is below the breakeven levels calculated above. (1) Allocate only if
students used a
combined
The current DHT sales forecast that are below breakeven points imply they plan to Weighted
make losses. ( 1) average
contribution or
Contribution
DHT has to increase their production and sales levels above the breakeven point to be margin and
fixed costs to
profitable. (1) arrive at a
breakeven point
)
Workings part(c):
High-low calculation(Marks allocated under BPM FT Marks
Working 1 & Working 2 below)
High-low method for variable production overheads R R
Total production overheads @ 85 000 units (Highest) 7 680 000 Given
Total production overheads @ 20 000 units (Lowest) (4 560 000) Given
Total production overheads @ 55 000 units (Highest) 6 096 000 Given
Total production overheads @ 15 000 units (Lowest) (4 176 000) Given
3 120 000 1 920 000

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MAC4861 2025 Solution

Units
- Highest (Given) 85 000 55 000
- Lowest (Given) (20 000) (15 000)
65 000 40 000
Variable costs portion R R
Variable production overhead cost per unit
= R3 120 000 / 65 000 48.00
= R1 920 000 / 40 000 48.00

Fixed costs portion

High-low method for fixed production overheads
Total quarterly production overheads 18 000 000 16 128 000 Given
Variable quarterly production overheads
(50 000 x 3) x R48) (7 200 000)
(40 000 x 3) x R48) (5 760 000)
Fixed quarterly production overheads 10 800 000 10 368 000

WORKING 1
Variable production overhead cost per unit(Per 48.00 48.00 ½(c)
High-low calculation)

Variable quarterly S,D&A overheads (50% of total)

(R9 000 000 *50% = R4 500 000) ½(r/w)
(R6 334 000 *50% = R3 167 000) ½(r/w)

Variable S,D&A cost per unit

BPM - (R4 500 000/150 000 units) 30.00 ½(r/w)
FT - (R3 167 000/120 000 units) 26.39 ½(r/w)

Material cost per device (Variable cost)

BPM (R9 200 000 /150 000 units) 61.33 ½(r/w)
FT (R6 750 000 /120 000 units) 56.25 ½(r/w)

Packaging cost per device (Variable cost)

BPM (R3 500 000/150 000 units) 23.33 ½(r/w)
FT (R1 580 000/120 000 units) 13.17 ½(r/w)
Total Variable costs 162.67 143.81

WORKING 2
Fixed quarterly S,D&A overheads (50% of total)
(R9 000 000 *50%) 4 500 000 ½(r/w)
(R6 334 000 *50%) 3 167 000 ½(r/w)
Fixed quarterly production overheads(From High-low 10 800 000 10 368 000
calc)
Total Fixed costs 15 300 000 13 535 000

Available 17 marks, Communication mark 0, Max 17 marks

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MAC4861 2025 Solution

(d) Discuss the ethical implications of the data breach on DHT. 4

1. POPIA requires that personal data be processed lawfully and that data subjects (customers) give
explicit consent before their information is shared with third parties. The CIO sharing the
customer data is illegal and unethical(1)
2. Customers affected by the breach may file lawsuits for damages, leading to significant legal
costs. (1)
3. Regulatory authorities may conduct an audit of DHT’s data security policies and require corrective
action. (1)
4. If found negligent, DHT’s executives (including the board) may be held accountable by
regulatory authorities for failing to prevent the breach. Shareholders and investors may
question the board’s oversight, leading to decreased investor confidence (1)

5. Negative publicity(reputational damage) can result in bad press, social media backlash, and a
decline in stakeholder confidence. Customers may feel betrayed and violated, leading to
customer decline and loss of business. (1)
6. Any other valid point (1)

Available 6 marks, Communication mark 0, Max 5 marks

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