Management

Accounting 1A
(AAM3691)

Tutorial Work Book

Semester 1

2019
Tutorial 1 Unit 1 Semester 1 2019

(Past exam questions)

Question 1 (1st Opp June 2012)
2.1 Classify each of the following as being usually fixed (F), Variable (V), semi-fixed (SF) or
semi-variable (SV):
a) Direct labour
b) Depreciation of factory machinery
c) Factory rental
d) Indirect materials
e) Advertising
f) Maintenance of machinery
g) Factory manager’s salary
h) Supervisory personnel
i) Job costing and process costing.
2.2
1. Which one of the following cost could not be classified as a production overhead cost in
a food processing company?
A. The cost of renting the factory building
B. The salary of the factory manager
C. The depreciation of equipment located in the materials store
D. The cost of ingredients
2. Which of the following would be classed as indirect labour?
A. Assembly workers in a company manufacturing televisions
B. A stores assistant in a factory store
C. Plasterers in a construction company
D. An audit clerk in a firm of auditors
3. Fixed costs are conventionally deemed to be:
A. Constant per unit of output
B. Constant in total when production volume changes
C. Outside the control of management
D. Those unaffected by inflation
4. Prime cost is:
A. All costs incurred in manufacturing a product
B. The total of direct costs
 C. The material cost of a product
D. The cost of operating a department
5. A direct cost is a cost which:
A. Incurred as a direct consequence of a decision
B. Can be economically identified with the item being costed
C. Cannot be economically identified with the item being costed
D. Is the responsibility of the board of directors

Question 2 (2nd Opp June 2012)

Which of the following costs are likely to be controllable by the head of the production
department?
a) Price paid for materials
b) Charge for floor space
c) Raw materials used
d) Electricity used for machinery
e) Machinery depreciation
f) Direct labour
g) Insurance on machinery
h) Share of cost of industrial relations department

Question 3 (Normal June 2013)

a) Define the meaning of the term cost object and provide two examples of cost objects.
b) Explain each of the following cost classifications, with examples of the types of costs that
may be included:
c) Product cost
d) Period cost
e) Variable cost

Question 4 (Supp June 2013 )

a) Distinguish between, and provide an illustration of:
b) Job costing and process costing.
c) Avoidable and unavoidable costs
d) Describe the three purposes for which cost information is required.
Question 5 (Tut 1 2014)
Mike Plate is the new manager of the materials storeroom for City Manufacturing. Mike has
been asked to estimate future monthly purchase costs for part Tube top, used in two of City’s
products. Mike has purchase cost and quantity data for the past nine months of 2013 as follows:
Month Cost of Purchase Quantity Purchased
January $10,390 2,250 parts
February 10,550 2,350
March 14,400 3,390
April 13,180 3,120
May 10,970 2,490
June 11,580 2,680
July 12,690 3,030
August 8,560 1,930
September 12,450 2,960
Estimated monthly purchases for this part based on expected demand of the two products for
the rest of 2013 are as follows:
Month Purchase Quantity Expected
October 2,800 parts
November 3,100
December 2,500
Required:
a) Use the high-low method to estimate the cost equation. What equation do you get?
b) Using the equation from requirement a, calculate the future expected purchase costs for
each of the last three months of the year.
c) Use regression analysis to compute a cost equation for the first 9 months of 2013.

Question 6 (2nd Opp June 2013)

Total conversion cost is N$500 000. Direct labour and the other element of conversion cost are
in the ratio of 3 : 2 to total conversion cost. Direct material is 5 times more than indirect material
and 3 times more than direct labour. Indirect material is already included in the N$500 000
conversion cost.
 Required:
Calculate the following:
Direct material used
Direct labour
Manufacturing overheads
Manufacturing cost
Primary cost

Question 7 (Normal June 2015)

7.1 A firm’s cost function may be expressed as:

y = a + bx

where:

y is the total cost

a is the total fixed cost

b is the variable cost per unit

x is the number of units of output

The total cost for output of 8 400 units in March 2015 is N$106 250 and the total fixed
cost is N$41 990.

REQUIRED: MARKS

Using the above information and formula, calculate:

7.1.1 the variable cost per unit 2
7.1.2 the total cost for output of 8 660 units in April 2015 3
7.1.3 the cost per unit for output of 8 500 units in May 2015 3

7.2

No Costs Manufacturing Marketing Administrative

1 Advertising
2 Salary of typist
3 Repairs to the factory machine
4 Depreciation on office furniture
5 Bad debts
6 Audit fees
7 Carriage costs on materials
purchased
8 Rent of the office building
9 Commission of salesperson
10 Fuel for promotional truck

REQUIRED: MARKS
7.2.1 Classify the above costs as either Manufacturing, Marketing or
5
Administrative costs
7.2.2 Which of the costs above could be classified as Prime Costs and which
2
costs could be classified as Conversion costs?

Question 8 (Supp June 2015)

8.1 Mr. M Kandjii, sole member of Bush Cleaners CC (BCCC), has recently won a tender from
Omaheke Regional Council to cut grass next to the road in the Omaheke Region. This
project is part of the Regional Council to create jobs. The manager of BCCC collected the
following information for consideration of the bookkeeper:

Month Kilometres cleaned (km) Labour costs

(N$)
November 2014 350 75 000
December 2014 300 70 000
January 2015 400 85 000
February 2015 250 50 000
March 2015 375 80 000
April 2015 200 45 000
May 2015 100 43 000

Mr Kandjii has express interest in a similar project started by the Roads Authority for the
rural areas near the border with Botswana and he wants to find an easier way to
determine his total costs. The project entails the cutting of grass on a 455 kilometre
stretch to prepare land for a railway line.

REQUIRED: MARKS
Develop a cost estimation equation for monthly labour costs by using the high-low
5
method.

8.2 The following data have been obtained from the accounting records of Filo Corporation for
the year ended 31 December 2014.

Account N$
Sales 860 000
Purchases of raw materials 170 000
 Direct labour 220 000
Manufacturing overhead 210 000
Administrative expenses 120 000
Selling expenses 170 000
Raw material inventory, beginning 10 000
Raw material inventory, ending 50 000
Work in process inventory, beginning 80 000
Work in process inventory, ending 60 000
Finished goods inventory, beginning 110 000
Finished goods inventory, ending 100 000

REQUIRED MARKS

8.2.1 Prepare a Schedule of Cost of Goods Manufactured. 5

8.2.2 Compute the Cost of Goods Sold 2

8.2.3 Prepare an Statement of Comprehensive Income 3

Question 9 (15 marks) (27 minutes) Regural exam 2016

9.1 Ongopa Ltd is a company situated in the Ausblick central business district. The company
had the following values of inventories at the beginning and end of June 2015:

1 June 2015 30 June 2015

Direct Materials N$ 45 000 N$ 36 000
Work-in-process N$ 27 000 N$ 21 000
Finished goods N$ 63 000 N$ 84 000

An analysis of Ongopa Ltd accounting records revealed the following additional manufacturing
information relating to June 2015:

Direct materials bought N$ 96 000

Direct labour cost N$ 84 000
Direct labour hourly rate N$ 7
Manufacturing overhead rate per direct labour hour N$ 15

What is the prime cost added to production during June 2015?

a) N$ 189 000
b) N$ 195 000
c) N$ 174 000
d) N$ 180 000
 e) None of the above, the correct answer is (3.5)

(3)

9.2 What is the conversion cost added to production during June 2015?
a) N$ 180 000
b) N$ 264 000
c) N$ 453 000
d) N$ 189 000
e) None of the above, the correct answer is (3.5)

(3)
9.3. The term “prime cost” refers to:

a) Manufacturing costs incurred to produce output

b) All costs associated with manufacturing other than direct labour costs and raw material
costs
c) Cost standards that are predetermined and should be attained
d) The sum of direct labour costs and all manufacturing overhead costs
e) The sum of raw material costs and direct labour costs (2)
(2)

9.3 Which element of total cost is shared by prime cost and conversion cost?

a) Variable overhead
b) Fixed overhead
c) Direct materials
d) Direct labour
e) None of the above (1)

(2)

9.4 Tulonga bought a car six years ago for N$ 84 000. He has to replace the car by either
buying a new one for N$ 112 000 or a second-hand car for N$ 76 000. Tulonga has decided
to buy a second hand car.

Tulonga considers the sunk cost to be:

a) N$ 28 000
b) N$ 112 000
c) N$ 36 000
d) N$ 84 000
e) None of the above, the correct answer is (2)

(2)
9.5 Which one of the following statements is TRUE about fixed and variable costs within a
relevant range?

a) Both costs are constant when considered on a per-unit basis

b) Both costs are constant when considered on a total basis
c) Fixed costs are constant in total and variable costs are constant per unit
d) Variable costs are constant in total and fixed costs are constant per unit (2)
e) None of the above

9.6 Which of the following costs would be included as part of factory overhead?

a) Depreciation of factory plant and equipment

b) Cost of shipping products to customers
c) Depreciation on the corporation's office building
d) Paper used in the production of books (1)
e) None of the above

Question 10 (15 marks) (27 minutes) Supplementary Exam 2016

Sea Food Lovers (Pty) Ltd is a Swakopmund based company which manufactures and sells sea
food products. The following information relates to the company’s records for the year ended 30
June 2015:

30 June 2015 1 July 2014

N$ N$
Direct raw material inventory 5 000 16 000
Finished goods inventory 8 000 11 000
Work-in-process inventory 16 000 17 000

Additional information:

 Direct raw material purchased during the year amounted to N$ 120 000.
 Direct labour cost N$ 44 000.
 Overhead costs incurred during the year N$ 36 000.
 The amount of overhead cost includes rent paid of N$ 12 000 of which 40% is for factory
and 60% is for office. The balance is for other manufacturing overhead costs.
 Selling and distribution expenses amounted to N$ 21 000.
 Sales revenue N$ 250 000

Required: Marks
10.1. Compute the value of direct material used in production 3
10.2. Compute the cost of goods manufactured 5
10.3. Determine the profit/(loss) for the year ended 30 June 2015 7
Total marks for Question 10 15
Question 11 (10 Marks, 18 Minutes) Regular 2017

Required: Marks
11.1. Identify four (4) objectives of cost accounting in an organization. 4
11.2. Differentiate between controllable and uncontrollable costs with two
examples in each case. 6
TOTAL MARKS FOR QUESTION 11 10

Question 12 (15 Marks, 27 Minutes) Supp. 2017

12.1

The following information relates to Ongaka Manufacturers Cc:

N$’000
Factory workers 61 000
Factory management 55 000
Sales personnel 42 500
Depreciation : Office equipment 2 200
Raw material Cost 95 000

Notes:

1. Factory workers are paid based on the hours worked.

2. Factory management is employed as permanent employees who are paid a fixed salary
irrespective of the hours worked.

3. Sales personnel’s compensation includes commission of 5% of revenue.

REQUIRED MARKS
For each cost above, indicate whether it is a direct or indirect, as well as
12.1 5
whether it is fixed or variable.

12.2
Mr. Angolo would like to apply for a de-bushing tender; he approached you and requested that u
develop cost estimation for de-bushing a 400 kilometre road. Mr. Angolo provided you with
information for the past 4 months of 2016:
Month Labour Cost Kilometers Cleaned
January 35 000 150
February 50 000 250
March 78 000 350
April 45 000 200

REQUIRED
Use the least squared method to compute a cost equation for the first 4
10
12.2 months of 2016, clearly indicating how much it will cost to clean a 400 km
road.
TOTAL MARKS FOR QUESTION 12 15

Question 13 (20 Marks, 36 Minutes) Normal 2018

Sophie and Eloy have just attained their qualifications from the University of Namibia in 2017.
They have majored in BACC and BBA, respectively. Given the current state of the country’s
economy, they have been looking for employment opportunities but without success. The two
are now contemplating to start up their own manufacturing company (Cc). If materialises, their
company I to be granted an exclusive right of being a sole manufacturer and supplier of school
uniforms for all secondary schools around Windhoek.

Sophie’s uncle, is a well-known business tycoon who has got business interests in various
sectors such as mining, agriculture, manufacturing and construction. Being an inborn
entrepreneur, Sophie’s uncle was happy to learn that the two graduates are contemplating to
start up their own business instead of being job seekers. As a result, he assured them through
Sophie that he would do everything possible to support them both financially and materially.
That is the reason why he requested them to provide him with a detailed (forecast):

PART A: Statement of Cost of Goods to be manufactured, and

PART B: Statement of profit/(loss) up to Gross Profit only.

Consider the following assumptions for the month of June 2018:

1. Capital contribution N$ 10 000

2. Expected monthly production (prototype) 1 000
3. Expected monthly sales 90% of monthly production
4. Cost of raw material 15% of capital contribution
5. Expected raw material consumption 80% of total purchase
6. Direct cost of labour 10% of capital contribution
7. Indirect material 1/4 of cost of raw material
8. Indirect labour 3/4 of direct labour cost
9. Rental fee 10% of capital of capital (60%-factory and 40%-
office)
10. Selling price per unit Gross profit margin of 25%
11. Assume that no other information is required in order answer both PARTS A and B.

REQUIRED: Assist Sophie and Eloy in preparing the following as per Sophie uncle’s MARKS
request:
13.1. Statement of Cost of Goods to be manufactured – clearly showing COGM. 9
13.2. Statement of profit/(loss) up to Gross Profit only. 11
TOTAL MARKS FOR QUESTION 13 20

Question 14 (15 Marks, 27 Minutes) Supp. 2018

Longitude Cc is a small newly-established courier company based in Okahandja which caters to

the needs of customers in central Namibia. The head of operations is trying to understand the
behavior of the transport costs associated with the various trips they embark upon, the following
is data collected from their operations:

Period Kilometers travelled Transport cost (N$)

Week 1 525 11 250
Week 2 450 10 500
Week 3 600 12 750
Week 4 375 7 500
Week 5 565 12 000

REQUIRED MARKS
Use simple regression to separate the mixed transportation cost into its fixed
14.1 and variable components for the courier company. 11

Show the cost equation the company can use to estimate total transportation
14.2 2
cost for a given level of activity.
Distinguish between the following terms in management accounting:
14.3 i) Direct and Indirect costs 2
ii) Product and period costs
TOTAL MARKS FOR QUESTION 14 15
Tutorial 2 Unit 2 Semester 1 2016
(Past exam questions)
Question 1 (June 2012 Normal)
a. A company values stocks using the weighted average value after each purchase. The
following receipts and issues have been made with regards to materials for the last
month:
Date Receipts Issues
Units N$/unit Valuation
Brought forward 100 5.00 N$500.00
4th 150 5.50 N$825.00
16th 100
20th 100 6.00 N$600
21st 75

What is the value of the closing stock using the weighted average method? (4
Marks)
b. Micro Ltd uses the economic order quantity (EOQ) as part of its materials control policy.
Which one of the following statements best describes the objective of the EOQ?
A. the company never runs out of stock except in exceptional circumstances
B. the cost of being out of stock is minimized
C. the combined cost of ordering and holding stock is minimized
D. stock is purchased from suppliers are the cheapest price (2 Marks)
c. Yuma Ltd uses the economic order quantity formula (EOQ) to establish its optimal reorder
quantity for its single raw material. The following data relates to the stock costs:

Purchase price: N$15 per item

Ordering costs: N$55 per order
Storage costs: 10% of purchase price plus N$0.20 per unit per
annum
Annual demand: 4 000 units
Calculate the EOQ to the nearest whole unit. (4
Marks)

Question 2 (June Supp 2012)

E Ltd’s stock purchases during a recent week were as follows:
Price per unit (N$) Units purchased
Day
1 1.45 55
2 1.60 80
3 1.75 120
4 1.80 75
5 1.90 130

There was no stock at the beginning of the week. 420 units were issued to production during the
week. The company updates its stock records after each transaction.
a. Using a first in, first out (FIFO) method of costing stock issues, calculate the value of
closing stock at the end of the week. (3 Marks)
b. If E Ltd changes to the weighted average method of stock valuation, the effect on closing
stock value and on profit compared with the FIFO method will
be…[Complete the sentence]? (3
Marks)
c. A domestic appliance retailer with multiple outlets stocks a popular toaster known as
Autocrisp 2000, for which the following information is available:
Average sales 75 per day
Maximum sales 95 per day
Minimum sales 50 per day
Lead time 12 – 18 days
Re-order quantity 1750
i) Based on the data above, at what level of stocks would a replenishment order be
issued? (3 Marks)
ii) Based on the data above, what is the maximum level of stocks possible? (3 Marks)
d. Vantec Ltd uses the economic order quantity formula (EOQ) to establish reorder
quantities. The following information relates to the forthcoming period:
Purchase price: N$40 per item
Ordering costs: N$25 per order
Storage costs: 10% of purchase price
Annual demand: 20 000 units
Calculate the EOQ to the nearest whole unit. (3 Marks)
Question 3 (June 2013 Normal)
Sunrise Bakery CC bakes bread daily for a school feeding project. It purchases flour in 50 kg
bags at N$1150 per bag and uses 800 of these bags every month. The cost of placing an order
for 13 bags is N$3 991 and the administrative cost per bag is N$90. Insurance cost N$175 per
bag and the storage cost is N$300 for 50 bags. The bakery’s investment rate is 12% per annum.
Calculate:
2.1 Economic order quantity (5)
2.2 Number of orders per year (3)
2.3 Ordering cost per year (2)

Question 4 (June 2013 Supp)

Decor Ltd has the following figures regarding its inventory:
Cost price per unit N$50 per unit
Storage cost per unit N$5 per unit
Annual usage 100 000 units
Normal delivery time 2.5 weeks
Insurance cost per unit N$5 per unit
Interest rate 9%
Ordering cost for 2 orders N$80
Safety stock 5 000 units
There are 50 normal working weeks per year, and four weeks in one month.
Required:
2.1.1 Calculate the economic order quantity (EOQ) 4
2.1.2 Calculate the number of orders per year 3
2.1.3 Determine the ordering cost per year 2

Question 5 (June 2014 Normal)

1.1 A wholesaler had an opening inventory of 330 units of large teddy bears valued at
N$168 each on 1 April 2014. The following receipts and sales were recorded during April
2014.
Date Transaction
4 April 14 Received 180 units at a cost of N$174 per unit
 18 April 14 Received 90 units at a cost of N$186 per unit
24 April 14 Sold 432 units at a prices of N$320 per unit
Using the weighted average cost method of valuation, what was the cost of the units
sold on 24 April 2014? (4 Marks)

Question 6 (June 2014 Normal)

The following information pertains to Discovery Parts CC who operates 52 weeks per year:
Minimum lead time: 2 weeks
Average lead time: 4 weeks
Maximum lead time: 6 weeks
Consumption (per week):
Normal: 250 units
Minimum: 180 units
Maximum: 320 units
Costs per order: N$8.00
Holding costs: N$0.95 per unit per annum
Material DP21: N$15 per unit
REQUIRED: MARKS

Calculate the following in respect of material DP21:

2.1 Economic order quantity (EOQ) 5

2.2 Minimum stock level 4

2.3 Re-order stock level 2

2.4 Average stock level 3

2.5 Maximum stock level 4

2.6 What is the objective of the EOQ? 1

Question 7 (June 2014 Supp)

The following information relates to Material Garo, which is required by Kangaroo Enterprises to
produce product Buchu:
Minimum lead time: 3 weeks
Maximum lead time: 11 weeks
Normal lead time: 7 weeks
Usage of Material Garo (per week):
 Maximum: 30 units
Minimum: 10 units
Normal: 20 units
Ordering Costs - per order: N$32.50
Holding costs: N$5.50 per unit per annum
Weekly requirement for Material Garo 60 units
Purchase price for Material Garo: N$12.60 per unit
You may assume that operates 52 weeks in the year.
REQUIRED: MARKS

Calculate the following in respect of material DP21:

2.1 Maximum stock level 4

2.2 Minimum stock level 3

2.3 Average stock level 3

2.4 Economic order quantity 5

2.5 Re-order stock level 2

2.6 Number of times that orders should be placed in the year 2

Question 8 (June Normal 2015)

Rico Enterprises CC uses the economic order quantity (EOQ) model to establish the reorder
quantity for raw material Y. The company holds no buffer inventory. Information relating to raw
material Y is as follows:

Annual usage is set at 48 000 units

Purchase price N$80 per unit

Ordering costs N$120 per order

An annual holding cost is calculated at 10% of the purchase price.

The manager recently entered into discussions with the sole supplier of raw material Y and the
supplier offered a discount of 5% on the purchase price if each order placed is for 2 000 units.

REQUIRED: MARKS
Calculate:

2.1 The EOQ for raw material Y before the discussions 5

2.2 The total annual cost of purchasing raw material Y as it is now 7

The total savings, if any, to Rico Enterprises CC when they accept the
2.3 7
offer
2.4 List one example of holding costs 1

Question 9a (June Supp 2015)

TED Ltd.’s stock purchases during a recent week were as follows:

There was no stock at the beginning of the week. 420 units were issued to production during the
week. The company updates its stock records after every transaction.

REQUIRED: MARKS
Does the company apply a perpetual or periodic inventory valuation
2.1 4
system, and difference between the two methods.
Calculate the physical units at the end of the week according to FIFO
2.2 5
assumptions
2.3 Calculate the value of units in closing inventory according to FIFO. 2

2.4 What is the value of all units issued to production according to FIFO? 6

2.5 Give three assumptions of the Economic Order Quantity (EOQ) model 3

Question 9b (20 marks) (36 minutes) Regular Exam 2016

Global Textiles Ltd manufactures and sells tailor made African dresses for women. The
company operates 52 weeks per year and the following information was extracted from its
boo
Day Price per unit (N$) Units Purchased ks
1 1.45 55 for
2 1.60 80 the
3 1.75 120
4 1.80 75 end
5 1.90 130 ed
31 December 2015:
 Minimum lead time 2 weeks
Average lead time 4 weeks
Maximum lead time 6 weeks
Consumption (per week):
Normal 125 units
Minimum 90 units
Maximum 160 units
Costs per order N$4.00
Holding costs N$0.75 per unit per annum

Required: Marks

Calculate the following in respect of material DP21:

9.1 Economic order quantity (EOQ) 5

9.2 Re-order stock level 2
9.3 Minimum stock level 4
9.4 Average stock level 3
9.5 Maximum stock level 4

9.6 Give any two objectives of the EOQ? 2

Total marks for Question 2 20

Question 10 (20 marks) (36 minutes) Supplementary Exam 2016

Walton (Pty) Ltd supplies printing cartridges to institutions of higher learning below the market
price of which UNAM and NUST are some of the beneficiaries. With its offices located in
Windhoek Southern Industrial area, Walton (Pty) Ltd buys the printing cartridges from its main
supplier based in Cape Town.

During the week ended 11 March 2016, the following transactions were recorded by Walton
(Pty) Ltd cost accountant:

Date Description Note

7 March Purchased 300 cartridges @ N$650 each -
8 March Purchased 150 cartridges @ N$650 each -
9 March Purchased 250 cartridges @ N$? 1
10 March Sold 650 cartridges to UNAM @ N$? 2
11 March Sold 30 cartridges to NUST @ N$? 2
Notes:

1. The supplier has notified all its clients in writing including Walton (Pty) Ltd that all its
prices will increase by 10% as from 9 March 2016.

2. Walton (Pty) Ltd sells its cartridges at a mark-up of 25%.

Required: Marks
10.1. Determine the value of closing inventory for the week ended 11 March 2016
according to the: (in each case, use the appropriate Store Ledger Card
format)
10.1. FIFO method; 5.5
1
10.1. Weighted Average method. 4.5
2
10.2 Compute the Gross profit for the week ended 11 March 2016, according to
the: (in each case, use the appropriate Store Ledger Card format)
10.2. FIFO method; 6
1
10.2. Weighted Average method. 3
2
10.3 On the basis of Gross profit, which method would you recommend? 1
Total marks for Question 10 20

Question 11 (20 Marks, 36 Minutes) Regular 2017

Given the current state of the Namibian economy since the last quarter of 2016, the government
which is considered as the main employer has frozen most of the recruitments. As a result,
graduates are encouraged to be prepared to cope with this challenge until such a time the
economy recovers. Maria Abel is one of such graduates who are currently experiencing such a
dilemma.

Luckily, her uncle is willing to assist her with some capital (funds) in order to start up her own
business. Given the high demand for Birth Day Cakes (BDCs) in her town, Maria is
contemplating to venture into this business where she will operate as a franchisee. She will be
ordering the birth day cakes directly from a supplier in Cape Town, and sell them to locals
across Windhoek. However, her uncle would only sanction the funds if she demonstrates to him
that she is clear on how the business will operate. As such, among other things; he requested
her to prepare an estimate report of how she will manage her inventory (i.e. birth day cakes).

Below is an extract from Maria’s estimate report that she intends to present to her uncle:

 Estimated demand for birth day cakes per week 250

 Maximum sales per week 150
 Minimum sales per week 80
 Delivery time 1 – 2, weeks

Additional information:

It will cost Maria N$ 250 to place an order. The supplier charges N$ 800 per cake which
excludes customs and transportation costs. She has a choice of either: paying the customs and
transportation costs separately, or the two could be factored into the purchase price by the
supplier. She opts for the latter. Customs and transportation charges are two and half percent
and three percent of the purchase price, respectively. Storage costs are estimated at one
percent of the purchase price per birth day cake per year.

You as a close friend of Maria, she requested you to assist her in answering the following
questions before she presents her estimate report to her uncle. Assume a 52 week working
year.

Required: The questions should be answered in the context in which they have been Marks
asked:
11.1. Apart from the information provided above, what other crucial information would you
advise Maria to incorporate into her estimate report in order to strengthen it?
3
11.2. Determine the order quantity that would result in the lowest total holding and total 4
ordering costs.
11.3. Compute the number of orders that Maria should place per annum. 2
11.4. What would be Maria’s Re-order level? 2
11.5. Determine Maria’s Maximum inventory level. 3
11.6. Suppose you have been informed that no other expenses are expected to be
incurred by Maria apart from what have been discussed above. Determine the total
annual inventory cost. 4.5
11.7. True/False: Both holding and ordering costs are examples of fixed costs whereas the
purchase price is an example of a variable cost. 1.5
TOTAL MARKS FOR QUESTION 11 20
Question 12 (20 Marks, 36 Minutes) Supp 2017

12.1 Explain the following terms pertaining to inventory control.

12.1.1 Perpetual inventory system 2

12.1.2 Periodic inventory system 2

12.1.3 Lead time 1

12.1.4 Re-order level 1

12.1.5 Bin card 1

12.1.6 Buffer stock 1

TOTAL MARKS FOR QUESTION 2.1. 8

12.2 Omega Limited (Pty) is manufacturer of MX2, popular sports bicycles. The company
buys
tyres from a local vendor. The following data, relates to a pair of tyres has been
extracted
from Omega Limited’s records:
Cost (per unit) N$
Storage cost based on average inventory 80
Insurance cost based on average inventory 77
Store keeper’s salary 8
Other relevant details are as follows:
(i) The purchase price is N$ 900 per pair.
(ii) The annual demand for tyres is 200 000 pairs.
(iii) The clerical cost per order is N$ 8 000.
(iv) The delivery cost per order is N$ 3 000.
(v) Unloading and inspection costs per order N$ 1 000
(vi) Omega Limited’s rate of return on investment in inventory is 15%.
 REQUIRED: MARKS

12.2 Calculate:

12.2.1 Handling costs 1.5

12.2.2 Ordering costs 1.5

12.2.3 Economic order quantity 6

Total annual inventory cost. Omega Limited considers annual demand

12.2.4 3
to determine total inventory costs for the year.

TOTAL MARKS FOR 12.2. 12

TOTAL MARKS FOR QUESTION 12 20

Question 13 (15 Marks, 27 Minutes) Normal 2018

13.1
Material costs constitute a substantial investment of capital and a business that has adequate
inventory remains competitive with ability of taking advantage of opportunities arising. It is for
these reasons that the management must remain vigilant and keep a close eye on its inventory.

REQUIRED: MARKS

a List four reasons businesses should keep adequate inventory. 4

b List three drawbacks of holding too much inventory. 3

Total Marks 2.1 7

13.2
Muhembo Limited uses 10 000 Kilograms of its main raw material per month. The material costs
N$ 8 per Kilogram to buy, supplier’s delivery costs are N$ 50 per order and internal ordering
costs are N$ 4 per order.
Total annual holding costs are N$1 per kilogram. The supplier has offered a discount of 1% if 6
000 kilograms of the material are bought at a time.

REQUIRED: MARKS

a Calculate the economic order quantity (EOQ) under the current purchasing system. 3
b Determine whether the discount offer should be accepted. 5
Total Marks 13.2 8
TOTAL MARKS FOR QUESTION 13 15

Question 14 (20 Marks, 36 Minutes)

Mega Manufacturing Limited had the following inventories at the end of 2017:
N$
Materials Inventory 15 000
Work-In-Process 17 000
Finished Goods 30 000
During January of the next year, the following transactions occurred:
(i) Purchased materials on account, N$125 000 and cash N$ 15 000.
(ii) Incurred factory payroll costs of N$105 000, of which N$15 000 was considered
Indirect Labour.
(iii) Requisitioned total materials of N$130 000 of which N$8 000 was considered indirect.
(iv) Materials returned from to stores direct N$ 5 000 and indirect N$ 2 000.
(v) Materials valued at N$ 2 000 was found be defective was returned to the suppliers.
(vi) Determined ending Work-In-Process, N$14 000.
(vii) Determined ending Finished Goods, N$26 000.

REQUIRED: MARKS

14.1 Prepare journal entries to record the flow of [Link] not required 11

14.2 Prepare materials control account. 4

15
Tutorial 3 Unit 3 Semester 1 2016
(Past exam questions)
Question 1 (June 2012 Normal)
The following information pertains to Mr. G Low, an employee of BT Manufacturers who receive
a weekly wage:
Normal time (5 days) 45,0 hours
Actual hours work – week 23 47,5 hours
Normal rate per hour N$10,50
Overtime pay: time and a half
Pension fund contributions based on normal
wage:
 Employer contribution 5%
 Employee contribution 7,5%
Medical Fund:
 50% contribution by employer N$45,00
 50% contribution by employee N$45,00
Social Security Contributions N$5,00
Income Tax payable on taxable income 15%
Required:
Calculate the net wage for Mr Low for week 23. (9 Marks)

Question 2 (June Supp 2012)

The following information applies to Mr. P Ride, an employee of Khomas Regional Trust who
receives a weekly wage:
Normal working week (6 days) 45,0 hours
Normal hourly wage N$15,00
Overtime: Weekdays = normal rate plus 50%
Sundays = double normal rate
Pension fund contributions based on normal
wage:
 Employer contribution 5%
 Employee contribution 7,5%
Medical Fund:
  50% contribution by employer N$13,00
 50% contribution by employee N$13,00
Social Security Contributions 1% of gross remuneration
Income Tax payable on taxable income 18%

Mr Ride submitted the following time sheet to the payroll office:

Day Number of hours worked
Monday 8
Tuesday 8
Wednesday 10
Thursday 8
Friday 8
Saturday 5
Friday 3

Required:
Calculate the net wage for Mr Ride. (9 Marks)

Question 3 (June 2013 Normal)

Namib Enterprises manufactures school desks on tender for the Ministry of Education. They
have employed five (5) employees to assemble the desks. The agreement with the employees
is that they will be paid weekly. After the first week, the following information is presented to you
to prepare the payroll for the week ending 9 March 2013:

Employee Hours worked Labour rate per Comments

hour
B Tjiti 66 N$27 2 hours spend
fixing mistakes
S Gora 25 N$22 Was appointed
during the week
R Mann 43 N$28 Attend to personal
matter during the
week
 J Hindjo 58 N$30
R Angul 60 N$25

According to the company policy, a normal work week consists of 50 hours (9 hours a day from
Monday to Friday and 5 hours on a Saturday). Overtime is remunerated at time and a half.
Medical aid contributions are calculated at 10% of an employee’s taxable income which is split
40:60 between the employee and the employer. Social Security Fund Contributions are 1,80%
of the basic salary and it is split 50:50 between the company and the employee. Pension
contributions of 7,50% of basic salary are made by the employee whilst the company contribute
10% of basic salary to the pension fund. PAYE is 18% of taxable income.
Required:
3.1 Prepare an individual payroll for each of the employees for the week ended 9
March 2013. (14)
3.2 Complete journal entries of the payroll accounts. (6)

Question 4 (June 2013 Supp)

Cheetah Clinic submits the following information for the week:

Name Position Normal rate Hours worked

Normal Overtime
G April Nurse N$65 45 13.25
S Blues Senior Nurse N$80 45 8.50
F Christ Matron N$125 45 5.00

Notes:
 Overtime is remunerated at time and a half of normal rate.
 The following deductions are applicable:
o Income Tax – 17,50% on taxable income
o Pension fund 7,50% employee; 21,70% employer (based on basic
salary)
o Medical Aid N$50 per person; 5% of basic pay by employer
 The Clinic has paid all the expenses and has submitted this information for you to
assist them with the record keeping.
Required:
4.1 Prepare a payroll with all the detailed information regarding gross wages,
deductions, and net wages. 7½
4.2 Prepare ledger accounts and balance the accounts. Include company 12½
contributions.

Question 5 (June 2014 Normal)

Magnum Enterprises produces a variety of products for the local market. The following details
concerning three employees for the month of April 2014, particularly the week ended 25 April
2014, are as follows:
Employee Actual Basic rate Units Standard Time
Hours per hour produced time in hours allowed,
worked per unit based on the
standard for
the units
produced
R Andreas 48 N$12 75 0.75 56
P Campbell 54 N$15 130 0.50 65
J Jonker 56 N$10 90 0.80 72

The company have a normal 45 hour week based on a five day working week. Overtime is
remunerated at one and a half times normal time. The company employees contribute 8% of
their normal weekly wages to a pension fund and the all employees must pay 18% of their
taxable income for Pay As You Earn (PAYE).
REQUIRED: MARKS
Calculate the net wages payable to each employee, using the Rowan Premium
30
Bonus Scheme.

Question 6 (June 2014 Supp)

The following labour details apply to employees at Tombola Enterprises for the week ended 31
May 2014:
Good units manufactured
Employee Monday Tuesday Wednesday Thursday Friday
Z Zachs 780 815 820 794 856
G Mouton 850 800 792 790 805
Z Nkandi 765 825 835 778 830

Additional information
a) All employees work a 7.5 hour day
b) Standard production output per employee should equal 104 units per hour
c) Normal hourly rates are as follows:
 Z Zachs N$20.00
 G Mouton N$25.00
 Z Nkandi N$27.50
d) Employees are paid a bonus equivalent to 75% of the time saved on units manufactured
in excess of the predetermined standard specified in b) above.
e) Employees contribute 8% of their normal weekly wages to a pension fund and they are
required to pay 18% PAYE on their taxable weekly earnings.
f) Employees and employers contribute each 0.90% of basic wages to the Social Security
Fund.
REQUIRED: MARKS
Calculate the net wages payable to each employee for the week ended 31 May
30
2014.

Question 7 (June Normal 2015)

Claudia has been employed by Woolworths (Pty) Ltd as a Teller Operator during the week of
16th to 22nd, March 2015. It is the company’s policy that each employee works eight hours per
day, Monday to Friday and five hours on Saturdays as normal working hours. Claudia’s
employment contract stipulates that she shall be paid a normal hourly rate of N$80.00. Overtime
is remunerated at normal rate times one and a half. Given the nature of the company’s
operations, Woolworths’ employees are allowed to work on Sundays and during public holidays.
As such, Sundays and public holidays are remunerated at twice the normal rate.

All Woolworths’ employees are affiliated to a trade union, National Union of Namibian Workers
(NUNW). Each employee contributes a membership fee of 0.50% of normal wage, and this is
the same amount the employer contributes. Claudia also contributes 1% of her normal wage
towards the Social Security Fund. The employer and Claudia each contribute N$ 90.00 towards
her Medical Aid. Claudia and her employer contribute a further 7.5% of her normal wage
towards her Pension fund. The applicable PAYE rate is 25% of the taxable income.

The following information relates to Claudia’s clock card for the week 16th to 22nd March, 2015:

Day Hours Worked Notes

Monday 8
Tuesday 10
Wednesday 8
Thursday 9
Friday 11
Saturday 5 Public holiday
Sunday 4

REQUIRED MARKS
7.1. Compute Claudia’s net wages payable for the week of March 16th to 22nd. 10
7.2. Journalise Claudia’s payroll. Exclude the company contributions 5

Question 8 (June Supp 2015)

Xwama Cultural Village and Traditional Restaurant is one of the emerging fast food outlets
around Windhoek. Established about five years ago, the company is perceived to be doing well
in terms of promoting traditional food. However, it is financial performance has not been that
good over the past two years.

“I don’t think we would be said to be doing well in terms of financial performance especially over
the past two years as none of the two years we could reach our target. One of the possible
contributing factors could be our employee turnover as we have recorded a high number of
employees leaving the company year-by-year. I think we need to introduce some wage
incentive schemes that could motivate our employees as a way of mitigating this issue of high
employee turnover -narrates the managing director of Xwama Cultural Village and Traditional
Restaurant”.

Suppose you have been appointed as the company’s cost accountant consultant. The
managing director is of the opinion that the company should implement either of the following
schemes, namely: (a) Halsey-Weir premium bonus system, or (b) Rowan premium bonus
system.

The following information was extracted from the clock card of Priscilla Petrus who works as a
waitress at Xwama during the month of February 2015. Her basic rate of pay is N$ 60.00 per
hour. Her clock card shows the following shifts that she worked during the month of February
2015.

Type of Shift Time allowed in hours Time taken in hours

Day Shifts 35 20
Night Shits 25 15

Required: Determine Priscilla’s basic wages and her bonus based on: Marks
8.1. Halsey-Weir premium bonus system; 7
8.2. Rowan premium bonus system. 7
8.3. From the company’s perspective, with the help of your answers in
3.1 and 3.2., which wage incentive scheme would you 4
recommend to Xwama? Substantiate your answer.
8.4. Apart from the three mentioned wage incentive schemes, what do 2
think would be the appropriate way of remunerating employees of
Xwama?

Question 9 (15 marks) (27 minutes) Regular Exam 2016

9.1.

Nowadays, remuneration of employees is an important factor. This is not only because it affects
the cost of production, but it also affects industrial relations of the organization. No organization
can expect to attract and attain qualified & motivated employees unless it pays them fair
remuneration.

Mr Primus Festus is a senior labour and industrial relations officer at the Ministry of Labour and
Industrial Relations. When asked why remuneration of employees is an important factor, he
pointed out that; wages and salaries have significant influence on our distribution of income,
consumption, savings, employment and prices. “It is important for every organization to have an
ideal wage system in place which should encourage productivity yet not very costly in operation.
He concludes that such a wage system should be flexible and should recognize individual
differences in job requirements”.

Required: Marks
9.1.1. Why is employee remuneration an important factor to an organization? 1
9.1.2. What are the elements that constitute an ideal wage system? 4
Total marks for 9.1. 5

9.2.
Simon Gregory is a plumber at the City of Windhoek. One of his primary duties is to ensure that
no water-pipe leakages occur given the high level of water shortages in the capital. His normal
working days are Monday to Friday, eight hours a day and a maximum of five hours on
Saturdays as the water crisis is prevalent in the city.

During the week ended 11 March 2016, Simon has worked 48 hours from Monday to Friday and
seven hours on Saturday. His clock card also revealed that during the same week, he worked
six hours on a Sunday.

His standard hourly rate is N$ 65.00. Normal overtime is paid at one and half times normal time
whereas Sundays and Public holidays are paid at double times normal time. All employees of
City of Windhoek contribute 7.5% of their basic wage per week towards their pension fund. His
weekly medical aid and social security contributions are 5% and 1% of the basic wage,
respectively. He is also a member of a trade union of which he contributes N$150.00 per week.
PAYE is 25% of taxable income.

Required: Marks
Compute Simon’s net pay payable for the week ended 11 March 2016 10
Total marks for 9.2. 10
Grand total marks for Question 9 15

Question 10 (20 marks) (36 minutes) Supplementary Exam 2016

Moses has been employed as an artisan at ABC Manufacturers Ltd where he is responsible for
making customized couches. Before he joined ABC Manufacturers Ltd, he resigned as an
artisan from XYZ Manufacturers Ltd in order to go for green pastures. Ideally, I love the type of
work I am doing as an artisan, therefore, I expect a better pay in return. Moses said.

Mr Pieter is Moses’ current supervisor. He informed Moses that the company expects nothing
but the very best from him because of the type of customers that the company deals with. We
are glad that you have joined our dynamic team; however, I should inform you that ‘customer
satisfaction’ is our first priority. Therefore, as an artisan, we expect you to make high quality
customized couches - the supervisor warns Moses.

Currently, the company is using the Halsey method - wage incentive scheme as a way of
calculating bonuses for its employees. However, it contemplates to move to the Rowan
premium bonus system as it is perceived to be more flexible yet less costly in operation.
Moses works only from Monday to Friday. The company does not operate during weekends and
public holidays. His clock card reads as follows during the week ended 19 February 2016:

 Standard time per day : 8 hours

 Hourly rate : N$ 75.00
 Standard production output : 2 couches per hour

Additional information:

 Number of customized couches manufactured : 75 couches

 Actual hours worked during the week : 35 hours

Required: Marks
10.1. Determine Moses’ Gross pay using the current remuneration scheme 6
10.2. Compute Moses’ Gross pay using Rowan premium bonus system 6
10.3. Comment on Moses’ productivity and efficiency 3
10.4. How many couches would have been produced per week had Moses 3
adhered to the standard production requirements?
10.5. Of the two schemes, which one would you recommend to the company, 2
and why?
Total marks for Question 10 20

Question 11 (20 Marks, 36 Minutes) regular 2017

Khomasdal Carpenter manufactures indoor wooden chairs. The company was awarded
a tender by the Ministry of Education to manufacture 435 chairs for Havana Primary
School.

The following labour details are for the week of 20th-24th March 2017:

Hours Worked
Employee Monday Tuesday Wednesday Thursday Friday
Kamati 8 8 9 8 11
Claasen 9 10 8 11 8
Wendy 8 7 12 9 8

Additional information
a) Each employee works a normal of 8 hours a day. Anything above the normal
hours is considered overtime. Overtime is remunerated at one and a half of the
hourly rate payable.
b) Sundays and public holidays are paid at twice the normal rate.
c) Employee are getting an hourly rate of N$ 100
d) Each employee should produce a normal volume of 120 chairs. The company
pays an incentive of N$ 20 for the production of each chair above normal
production level.
e) The employees’ production sheet for the week is as follows:

Chairs
Employee produced
Kamati 120
Claasen 160
Wendy 155
TOTAL 435

f) Employees contribute 8% of their normal weekly wages to a pension fund and

they are required to pay 18% PAYE on their taxable weekly earnings.
g) Employees and employers contribute each 0.90% of basic wages to the Social
Security Fund.
h) This year, Namibia`s Independence day was celebrated in Kavango region on
the 21 March 2017.

REQUIRED: MARKS
11.1 Calculate the net wages payable to each employee for the week
15
ended 24 March 2017.
11.2 Journalise the payroll information with the exclusion of the company
5
contributions.
TOTAL MARKS FOR QUESTION 11 20

Question 12 (15 Marks, 27 Minutes) Supp 2017

Suppose you have been offered a part time job at Windhoek Woodwork Ltd as a cost
accountant. As part of your job description, you are required to prepare employees’ weekly
 wages reports. Daniel is the company’s artisan who is responsible for manufacturing dining
tables.

Daniel works Monday to Friday, eight hours a day at an hourly rate of N$ 50. It takes Daniel two
hours to manufacture one table. During the week ended 10 March 2017, he manufactured 22
tables. His clock card revealed that he spent 40 hours to manufacture those 22 tables.

Currently, the company is using the Rowan Bonus Plan as a way of motivating its employees.
The Managing Director has requested you to advise whether it should continue with the current
bonus system or it should replace it with the Halsey-Weir bonus system. I would prefer a bonus
system which motivates the employees, yet affordable by the company – the MD narrates.

Required: Assist the MD in answering the following questions: Marks

12.1 Compute the number of tables that Daniel was supposed to manufacture per week
. had he adhered to standard production requirement. 1
12.2 Comment on Daniel’s productivity with supporting calculations. 2.5
.
12.3 How much is Daniel’s Gross Wage for the week ended 10 March 2017 according to:
. a) Rowan plan;
b) Halsey-Weir system. 6.5
3
12.4 Given the MD’s expectations, which bonus scheme would you recommend and why? 2
.
TOTAL MARKS FOR QUESTION 12 15

Question 13 (20 Marks, 36 Minutes) Normal 2018

Home Economics (Pty) Ltd manufactures quality coffee tables. Currently, the company uses an
hourly rate as its remuneration system. Being classified as a labour intensive enterprise, one of
the challenges that the company is battling with is the retention of its skilled employees. Mr
Jason Hailonga is the company’s Managing Director who is very much concerned about the
high staff turnover being experienced under the Carpentry department. Though an employee
satisfaction survey suggests for the piece work system, he is somewhat reluctant to implement
it. I cannot just implement the piece work system because of the high staff turnover. There are
other factors that one has to consider such as affordability on the side of the company and
system flexibility. Thus, I would only recommend the implementation of a piece work system
based on a detailed analysis between the current remuneration system and what is being
proposed. As such, I will hire a consultant to do such an analysis for us – the MD narrates.

The company’s working days are Monday to Friday. Each employee is expected to work eight
hours a day, Monday to Friday. Mr Joseph is the company’s carpenter; whose employment
package comprises the following:
Standard production 2 coffee tables per hour
Normal rate per hour N$ 80,00
Pension contribution (employee) 7,5% of basic wage
Social Security Contribution 0,9% of basic wage
Trade union contribution N$250,00 per week
Medical Aid Scheme 5% of basic wage
PAYE 25% of taxable income

Actual information for the week ended 18 May 2018:

Number of coffee tables produced 75
Hours worked 35
Days worked 5 (Monday to Friday)

It is the company’s policy of rewarding employees according to Halsey bonus system,

irrespective of the remuneration system being used. This has been the company’s strategy as a
way of motivating its employees especially those under the carpentry department where the rate
of staff turnover is currently worrisome.

REQUIRD: All questions should be answered within their context. MARKS

13.1. Assume that you are the hired consultant. Advice the company’s MD by
preparing a detailed analysis as per his request clearly showing the Net Wage 15
Payable to Mr Joseph for the week ended 18 May 2018 based on both
remuneration systems).
13.2. Has Joseph achieved his weekly normal production output? Accordingly,
comment on his weekly productivity. 3.5
13.3. Apart from the two remuneration systems discussed in the case study above,
what other aspects should the MD consider as a way of overcoming the current 1.5
high staff turnover?
TOTAL MARKS FOR QUESTION 20

Question 14 (22 Marks, 40 Minutes) Supp. 2018

14.1 James Spring is an employee of Truck and Trend Cooperration, in Namibia where the 21st
of March is Independence Day. James operates a crane for the industrial section of the
company; he starts a work day at 8 am every morning and knocks off at 5pm with an hour for
lunch between 1 and 2 pm.

James is a dedicated employee and takes great pride in his work as the particular crane he
operates requires a specialized skill set. James would move a load of 1.5 tons on a given day
and his manager says he has observed a learning curve effect for James with a rate of 90%.

REQUIRED: MARKS

What is a learning curve?

14.1.1 2

How much time in days and hours would you expect James to spend moving a load
14.1.2 3
of 3 tons given his learning rate?
Total Marks 14.1 5

14.2 On the Friday of the week ending March 23 2018, James had worked for 40 hours and of
those 5 were on the Wednesday. He contributes 7.5% of his basic wage to a pension fund and
pays Income tax of 18%. He has monthly commitments to a trade union in the form of a
contribution of N$ 80 and medical aid is N$ 600. Social security contributions by the employer
and employee are equal to the minimum required under the act.

James is paid a rate of N$ 30 per hour, overtime is compensated at 1.75 of normal time and
public holidays are paid at twice the normal rate.

REQUIRED: MARKS
Give a breakdown of hours worked by James by indicating how many hours are
14.2.1 3
normal time, overtime and double time.

14.2.2 Calculate the net wage for James for the week ending 23 March 2018. 8.5
Prepare journal entries to record the payroll for James including employer
14.2.3 contributions assuming the employer makes contributions to the medical aid and 5.5
pension find equal to those to the employee
Total Marks 14.2 17
TOTAL MARKS FOR QUESTION 14 22

Tutorial 4 Unit 4 Semester 1 2016

(Past exam questions)
Question 1 (June 2012 Normal)
A factory with three departments uses a single production overhead absorption rate, expressed
as a percentage of direct wages cost. It has been suggested that departmental overhead
absorption rates would result in more accurate job costs. Set out below are budgeted and actual
data for the previous period, together with information relating to job no. 657.
Direct wages Direct labour Machine hours Production
hours overheads
Budget:
 Department A N$ 25 000 10 000 40 000 N$ 120 000
B 100 000 50 000 10 000 30 000
C 25 000 25 000 - 75 000
Total: 150 000 85 000 50 000 225 000
Actual
 Department A N$ 30 000 12 000 45 000 N$ 130 000
B 80 000 45 000 14 000 28 000
C 30 000 30 000 - 80 000
Total: 140 000 87 000 59 000 238 000

During this period job no. 657 incurred the actual costs and actual times in the departments as
show below:
Direct Material Direct wages Direct Machine
labour
N$ N$ hours Hours
Department A 120 100 20 40
B 60 60 40 10
C 10 10 10 -

After adding production overhead to prime cost, one-third of total cost is added to production
cost for gross profit. You are required to:
1.1 calculate the current overhead absorption rate (2 Marks)
1.2 using the rate obtained in 4.1 above, calculate the production overhead charged to job
no 657, and state the production cost and expected gross profit on this job.
(5 Marks)
1.3 Compute departmental overhead absorption rates, using machine hours as basis for
department A, and labour hours as basis for department B and C. (6 Marks)
1.4 Use the departmental overhead absorption rates and calculate the production overheads
charged to job no. 657. (2 Marks)
1.5 Show the over-/under-absorption, by department and in total, for the period using the
rates calculated in 4.3 as basis for allocating the overheads. (5 Marks)

Question 2 (June Supp 2012)

Hotel Thule is developing a cost accounting system. Initially it has been decided to create four
cost centres: Residential and Catering deal directly with customers, while Housekeeping and
Maintenance are internal service cost centres. The following overhead details have been
estimated for the next period:
 Residential Catering Housekeeping Maintenance Total
N$ N$ N$ N$ N$
Consumable 1 400 2 300 2 700 900 7 300
materials
Staff costs 1 600 1 300 1 100 500 4 500
Rent and rates 3 700
Contents insurance 1 400
Heating and lighting 1 800
Depreciation on 3 700
equipment
22 400
The following information is also available:
Residential Catering Housekeeping Maintenance Total
Floor area (m²) 2 750 1 350 600 300 5 000
Value of equipment N$350 000 N$250 000 N$75 000 N$75 000 N$750
000
Number of 20 20 15 5 60
employees

In the period it is estimated that there will be 2 800 guest-nights and 16 000 meals will be
served. Housekeeping works 70% for Residential and 30% for Catering, and Maintenance
works 20% for Housekeeping, 30% for Catering and 50% for Residential.
You are required to:
2.1 prepare an overhead statement showing clearly allocations and apportionments to each
cost centre. (12 Marks)
2.2 calculate appropriate overhead absorption rates for Residential and Catering. (4 Marks)
2.3 calculate the under or over-absorption of overheads if actual results were as follows:
Residential: 3 050 guest-nights with overheads of N$144 600
Catering: 15 250 meals with overheads of N$89 250 (4 Marks)

Question 3 (June 2013 Normal)

Comptech CC provides four different types of services to small business clients. These services
are:
 Sales undertaken by the Sales Division
  Programming undertaken by the Programming Division
 Repairs and Maintenance undertaken by the Maintenance Division
 Networks undertaken by the Technical Division
The labour and overhead costs for the company for the year ended 28 February 2013 are
expected to be as follows:
Budget for the Year ended 28 February 2013 Notes N$
Payroll Salaries - Programmers 108 750
Salaries – Sales personnel 70 000
Salaries - Technicians 1 92 750
Salaries - Supervisors 2 54 300
Other Rentals paid 110 000
Security costs 22 000
Electricity costs 11 500
Insurance of premises 27 500
Depreciation - Computer Equipment 36 875
- Office Equipment 12 750
546 425

Sales Programming Maintenance Network

Value of Computer Equipment 400 000 120 000 40 000 30 000
(N$)
Value of Office Equipment (N$) 30 000 10 000 15 000 5 000
Floor Area (m²) 100 20 60 40
Electricity usage (Kilowatt 280 100 40 40
hours)
Budgeted operated hours 12 000 4 800 3 000 7 600

Note 1: The Technicians are shared between the Maintenance and Technical Divisions in
proportion to the budgeted hours for those two divisions.
Note 2: Supervisor salaries are apportioned to the other divisions in proportion to the salaries of
the other divisions.

Required:
3.1 Produce an overhead apportionment schedule for the year ended 28 February (16)
2013.
3.2 Calculate an overhead absorption rate for each of the divisions, that is: Sales,
Programming, Maintenance, Network (8)
Calculate the overhead absorption rate to four decimal places.

Question 4 (June 2013 Supp)

The budgeted costs for the year for Dynamic Engineering are as follows:
Total Department Department Department Maintenance Factory
A B C Department Office
Direct Material 68
000
Direct Labour 43
500
Indirect Material 3 000 2 000 1 000 800 100
Indirect Labour 750 605 440 1 000 1 200
Supervisor 3 000
Fire Insurance – 900
Machine
Electricity 1 200
Repairs 1 805
Maintenance
Depreciation – 3 000
Machinery
Rent – factory 2 000
building
Heating 1 000
Factory office 1 000
Expense
Department A, Department B and Department C is all production department while Maintenance
Department and Factory office are service departments that support production.
The following information is available for Dynamic Engineering:
Area in m² No of Kilowatt Value of Direct
Workers Hours Machinery labour
hours
Department A 60 20 3 000 1 000 5 000
Department B 50 10 1 800 7 000 2 000
Department C 40 9 800 8 000 3 000
Maintenance 30 6 400 5 000 -
Factory office 20 5 - - -

Secondary allocation is done in the following bases:

Maintenance department - Value of Machinery
Factory office - Number of workers
The secondary allocation for the factory office must be done first.
Required:
4.1 Determine the primary and secondary allocation overhead costs to the different
departments. 23
4.2 Calculate an overhead absorption rate for each production department based on
labour hours. 6

Question 5 (June 2014 Normal)

Nanas Table Tops CC purchase marble blocks from Karibib Marmer Works and convert it into
table tops for the lucrative upmarket residential houses built in Windhoek. The company
provided you with the following information:

Factory building Rent - factory building N$146 250

Electricity – factory building N$39 600
Administration building Rent – admin building N$45 000
Insurance – admin building N$38 250
Equipment in factory Depreciation – factory equipment N$55 000
Insurance – factory equipment N$68 750
Depreciation of administration office fittings and furniture N$45 360
Other factory expenses Factory employees protective N$36 450
clothing
Canteen expenses N$68 400

The following figures are presented as the basis for the allocation of overheads:

Basis Grinding Finishing Service Dept. Service Dept.

1 2
Direct labour hours 2 750 1 450 265 365
Number of employees 90 80 60 40
Machine hours 350 250 150 165
Floor space 650 m² 375 m² 250 m² 225 m²
Value: Equipment N$40 000 N$30 000 N$24 000 N$16 000
Percentage use of
43.33% 40.00% 10.00% 6.67%
electricity

The secondary apportionment of the service department takes place on the basis of machine
hours, starting with Service Dept. 1. All final overhead allocation rates are calculated based on
labour hours.

REQUIRED MARKS
Allocate overheads to the Grinding and Finishing Departments using the
5.1. 20
appropriate basis.
Calculate the overhead allocation rates for both departments. (Work to two
5.2. 4
decimal places, if applicable)

Question 6 (June 2014 Supp)

Three cost centers are identified in the production of Zedate, namely Polishing, Sanding and
Exiting. The following information has been prepared by the cost accountant of Zandberg
Manufacturers:
Polishing Sanding Exiting
Indirect factory salaries N$46 290 N$119 483 N$197 340
Details of other manufacturing costs are:
Depreciation of machinery N$1 250 000
Rates and taxes N$1 725 450
Rent of factory N$1 409 400
Heat and lighting N$ 197 070
Canteen expenses N$ 512 000
Power – Machine battery N$ 361 000
Additional information:
Polishing Sanding Exiting
Number of machine hours 420 000 79 200 211 500
Number of employees 120 140 60
Labour hours 300 000 240 000 210 000
Floor area occupied (m²) 1 500 1 500 2 000
Value of machinery N$5 000 000 N$600 000 N$650 000
Kilowatt power of machinery 420 000 190 000 390 000

REQUIRED MARKS

6.1. Prepare an overhead analysis schedule for Zandberg Manufacturers 19.5

Calculate the overhead allocation rates for each cost center using machine
6.2. 4.5
hours as basis. (Work to two decimal places, if applicable)

Question 7 (Normal June 2015)

A company produces several products which pass through two production departments in its
factory. These two departments are concerned with assembling and packaging products. There
are two service departments’ maintenance and cafeteria, in the factory.

Predetermined overhead allocation rates, based on direct labour hours are established for the
two production departments. The budgeted expenditure for these departments for the period
just ended, including the apportionment of service department overheads, was N$ 105 000 for
assembly and N$ 54 050 for packaging. Budgeted direct labour hours are 12 000 for assembly
and 10 250 for packaging.

Service department overheads are apportioned as follows:

 % used of % used of
Maintenance costs Cafeteria costs
Assembly 70 60
Packaging 30 30
Maintenance - 10
Cafeteria - -

During the period just ended, actual overhead costs and activity were as follows:

N$ Direct labour hours

Assembly 74 560 12 105
Packaging 37 800 10 520
Maintenance 25 000
Cafeteria 23 450

REQUIRED MARKS

Calculated the overheads allocated in the period and indicate the over and
a. 15
under allocation in each production department.

Question 8 (June Supp 2015)

A company has two production cost departments (P1 and P2) and two service centres
(Materials Store and Canteen) in a factory. Estimated overhead costs for the factory for a
period, requiring apportionment to cost centres, are:

N$

Buildings insurance 37 800

Management salaries 24 300

In addition, the following overheads have been allocated to cost centres:

Cost Centres
 P1 P2 Materials Store Canteen

N$98 300 N$80 100 N$61 200 N$75 600

Further information:

Cost Centres

P1 P2 Material Canteen
store

Floor Area (m²) 4 560 5 640 720 1 080

No of employees 18 24 6 6

Machine hours 6 200 5 800

Share of Materials Store 30% 60% 10%

Required Marks

8.1 Compile a schedule showing the primary allocation of overhead costs. 8

Complete a secondary allocation based on the specified order of closing

8.2 method starting with Material store and using number of employees as basis 5
for distributing canteen costs.

Calculate overhead allocation rates for each of the production departments

8.3 2
using machine hours as a basis.

Question 9 (15 marks) (27minutes) Regular Exam 2016

Pearling CC has two production departments (F and G) and two service departments
(Canteen and Maintenance). Labour hours are used as an allocation base in the two labour
intensive production departments, they total 2000 and 1800 respectively.
Total allocated and apportioned general overheads after the primary allocation for each
department are as follows:
F G Canteen Maintenance
N$125 000 N$80 000 N$20 000 N$40 000

Canteen and Maintenance perform services for both production departments and to one another
in the following proportions.
F G Canteen Maintenance
% of Canteen to 60 25 - 15
% of Maintenance to 55 35 10 -

Required Marks
9.1 What are the overheads allocated to each production department if
the secondary allocation is done according to the mathematical
method? 9
9.2 What are the overheads allocated to each production department if
the secondary allocation is done according to the direct method?
4
9.3 Calculate departmental absorption rates for F and G following the
secondary allocation in 4.2. 2

Question 10 (15 Marks) (27 Minutes) Supplementary Exam 2016

NSP Limited produces tents for entertainment and for the outdoors. Production takes place in
three departments, namely Cutting, Sewing and Finishing. Shown below is an extract from the
budget for the manufacture of 8 800 tents for the year ended 31 May 2016:

Manufacturing cost centre Service cost centre

Cutting Sewing Finishing Personnel Inspection
Budgeted overheads N$411 525 N$72 850 N$82 900 N$118 500 N$92 200
Allocations of overheads
- Personnel 18% 38% 29% - 15%
- Inspection 45% 13% 32% 10% -

Required: Marks
Calculate the allocation of overheads to the production cost centres
10.1 using the repeated distribution method. (Start with the Personnel cost 10
centre).
Confirm your answer in 10.1 by using the method of simultaneous
10.2 5
equations.
Total marks for Question 10 15

Question 11 (15 Marks, 27 Minutes) regular 2017

A company plans to manufacture two products, 1 500 Tanks and 3 000 Hard pipes, in
the next accounting period.

The total cost of factory overhead is estimated at N$280 200.

For the next accounting period, the following has also been calculated:

Tanks Hard pipes Total

Total overheads from primary allocation (N$) 100 200 80 200 180 400
Total overheads from secondary allocation (N$) 64 000 35 800 99 800
Grand total 164 200 116 000 280 200

The unit cost of direct materials amounts to N$300 for a tank and N$150 for a hard pipe,
and direct labour cost is expected to be N$30 for a tank and N$20 for a hard pipe.
Indirect labour is usually three quarters the rate of direct labour

Labour hours have been calculated as 7 hours for a tank and 5 hours for a hard pipe,
and these times include finishing time of 3 hours and 2 hours respectively which are
considered indirect labour time.

Assume allocated costs do not include labour.

REQUIRED: Marks
Calculate the factory cost per unit for each product using the different methods
below, of absorbing factory overheads:
11.1 Method 1 using direct labour hours as a basis 9
11.2 Method 2 based on Indirect labour cost 6
TOTAL MARKS 15

Question 12 (15 Marks, 27 Minutes) Supp. 2017

 Ostrich Products (Pty) Ltd is a well-known producer of high quality belts made out of ostrich
skin. The company has two production departments and two service departments. The
company’s cost accountant has provided you with the following budgeted information:

% to be allocated from % to be allocated

service department X from service
Department department Y Primary allocation
Production dept. A 60% 50% N$80 000
Production dept. B 20% 20% N$30 000
Service dept. X - 30% N$15 000
Service dept. Y 20% - N$ 12 000

During the same period under review, actual overhead costs for production departments
amounted to N$ 173 250 and N$ 35 000 for departments A and B, respectively. Any over or
under applied overheads are treated against the cost of goods sold.

Required: Answer the following questions (Round your answers to two decimal
places whenever applicable) Marks
12.1 Using the simultaneous equation approach, compute the overhead to be allocated to
. production departments A and B from the service departments. 10
12.2 Compute the over or under applied overhead for each production department. 3
.
12.3 Journalise your answers in (12.2.) above. 2
.
TOTAL MARKS FOR QUESTION 12 15

Question 13 (15 Marks, 27 Minutes) Normal 2018

The Metropolitan Hotel is located near a bus station that serves travellers who are on transit to
SADC countries. The hotel which has five cost centres: Residential, Food and Beverage that
deal directly with customers, while Housekeeping and Maintenance are internal service cost
centres; is developing a cost accounting system. The management accountant is in the process
of calculating overhead absorption rates for the next period. An extract from the overhead
analysis sheet is as follows:
N$
Residential 500 000
Food 350 000
Beverage 150 000
 Housekeeping 100 000
Maintenance 80 000
Total 1 180 000

Housekeeping provides services to Residential, Food, Beverage and Maintenance in the ratio of
4:3:2:1 respectively. Maintenance on the other hand works 5% for Housekeeping, 20% for
Food, 55% for Residential and 20% for Beverage.
Additional information

Residential Food Beverage

Labour hours 35 000 18 000 12 000

Required: Where applicable round off your answers to the nearest N$ Marks

13.1. Using the simultaneous equation approach, compute the total overhead for 4
the internal service departments.

13.2 Allocated internal service departments overhead to Residential, Food and

8
Beverage.

13.2. Compute the overhead recovery rate for Residential, Food and Beverage. 3
TOTAL MARKS FOR QUESTION 13 15

Question 14 (20 Marks, 36 Minutes) Supp. 2018

UNAM Ongwediva Campus offers only high-tech graduate-level programmes. UNAM

Ongwediva Campus has two principal operating departments, Camera Engineering and
Photographic Sciences, and two support departments, Facility and Technology Maintenance
and Enrolment Services. The base used to allocate Facility and Technology Maintenance is
budgeted total maintenance hours. The base used to allocate Enrolment Services is the number
of credit hours for a department. The Facility and Technology Maintenance budget is N$350
000, while the Enrolment Services budget is N$950 000. The following table summarises
budgeted amounts and allocation-base amounts used by each department:

Services provided (Annually)

Budget Engineering Photographic F&T Enrolment

Sciences Maintenance Service

Engineering N$3 500

000
 Photographic N$1 400
Sciences 000

F&T Maintenance N$350 000 1 400 1 000 5 600

(in hours)

Enrolment Service N$950 000 22 200 36 000 1 800

(in credit hours)

REQUIRED: Marks

14.1 By making use of the algebraic method, allocate the service departments’ costs to 14
the production departments

14.2 Diferentiate between the method used in 14.1 and the Direct Method and also give 6
an advantage of each of these two methods

TOTAL MARKS FOR QUESTION 14 20

Tutorial 5 Unit 5 Semester 1 2016

(Past exam questions)
Question 1 (June 2012 Normal)
Tugela Manufacturing Company (TMC) manufactures heavy duty machinery according to client
specifications. On 1 April 2011 the incomplete work consisted of one job no.305, with
accumulated cost to an amount of N$13 000.
The following information in respect of April 2011 is available:
 Materials to an amount of N$7 500 were in inventory at the beginning of the month.
Additional materials to an amount of N$38 200 were purchased. Only one control
account is used for both direct and indirect material.
 Materials were issued as follows:
o Job 305 N$15 800
o Job 306 N$13 400
o Job 307 N$ 9 100
o Indirect material N$ 2 100
 Labour costs:
o Job 305 N$16 000
 o Job 306 N$12 000
o Job 307 N$ 9 000
o Indirect labour and supervising N$ 5 500
 Other manufacturing overheads for April 2011
o Depreciation on machinery and equipment N$6 000
o Water and electricity N$3 000
o Sundry overheads N$1 900
(Overheads are allocated to the jobs according to direct labour costs)
 Jobs 305 and 307 were completed during the month and invoiced to clients at
N$65 600 and N$27 200 respectively.
Required:
Prepare a cost and income statement for April 2011 for each job individually and show the
incomplete work at the end of the month. (15 Marks)

Question 2 (June 2012 Normal)

Muronga Ltd supplied the following details regarding a contract that was still in progress at the
end of the accounting period ended 29 February 2012:
Contract price N$100 000
Cost to date N$60 000
Estimated costs to completion N$12 000
Sales value of work certified N$75 000
Cost of certified work N$50 000
Retention amount N$7 500
Calculate the amount of profit on this contract that may be transferred to the profit and loss
account for the past accounting period, using each of the following methods:
2.1 The work certified method (5 Marks)
2.2 The percentage of completion method (5 Marks)

Question 3 (June Supp 2012)

Komati Ltd uses a job costing system. The following information is available in respect of May
2011, the first month of business:
N$
1 Purchases of raw materials 42 600
2 Materials were issued as follows:
- Direct materials
o Job no. 1 16 950
o Job no. 2 17 360
- Indirect materials 14 360
3 The payroll was summarised as follows:
- Direct labour
o Job no 1 (249 hrs) 12 450
o Job no 2 (273 hrs) 13 650
- Indirect labour 12 800
4 Overheads are applied on a labour hour basis. The budgeted
manufacturing overheads are N$27 000 per month and the budgeted
normal capacity is 600 labour hours per month.
5 Job no 1 (300 units) was completed during the month and 200 units were
sold on 31 May 2011 for N$130 per unit.
6 The following additional expenditure was debited to the overheads control
account:
- Electricity and water 13 130
- Depreciation: equipment 18 200
- Rent of factory 18 000

Required:
3.1 Calculate the total cost of Job no1 and the cost of the work in progress of Job no
2 at 31 May 2011. (8 Marks)
3.2 Calculate the profit/(loss) on the sale of the 200 units of Job no 1. (3 Marks)
3.3 Calculate the total manufacturing overheads over or under applied. (4
Marks)

Question 4 (June Supp 2012)

On 29 February 2012, Ohangwena Builders Ltd supplied the following details with regard to two
contracts that are still in progress:

Details Contract A−K Contract L−Z

N$ N$
Contract price 150 000 185 000
Costs to date 68 000 154 000
Estimated costs to completion 35 000 7 000
Sales value of work certified 110 000 172 000
Progress payments received 100 000 160 000
Cost of work certified 70 000 150 000
No profits have been taken on the contracts so far.
Compute the amount of profit (if any) that may be taken to the profit and loss account on each
contract at 29 February 2012

Question 5 (June 2014 Normal)

Kuba Engineering Ltd operates a job costing system. Production overhead is absorbed at the
rate of N$8.50 per machine hour. In order to allow for non-production costs and profit, a mark-
up of 60% of prime cost is added to the production cost when preparing quotations.
The estimate requirements of Job T23 are as follows:
Direct materials N$10 650
Direct labour N$ 3 260
Machine hours 140 hours
Compute the price that the company must quote for Job T23. (5 Marks)

Question 6 (June 2014 Normal)

Douglas Enterprises operates a job costing system. The company’s standard net profit margin is
20% of sales.
The estimated costs for Job 173 are as follows:
Direct materials 5 metres @ N$20 per metre
Direct labour 14 hours @ N$8.00 per hour
Variable production overheads are recovered at the rate of N$3.00 per direct labour hour.
Fixed production overheads for the year are budgeted at N$200 000 and are recovered on
the basis of direct labour hours which are budgeted at 40 000 direct labour hours for the
year.
Other costs, relating to selling, distribution and administration are charged to each job at
N$80 per job irrespective the size or the value of the job.
Calculate the price to be quoted for Job 173 to the nearest N$. (7 Marks)
Question 7 (Normal June 2015)

Electro Contact CC (EC) uses an estimated overhead rate for allocating production overhead to
job orders. The rate is on a machine hour basis for the machining department and on a direct
labour cost basis for the finishing department. The company estimated the following for 2014:

Machining Finishing
Production overhead costs N$10 000 000 N$8 000 000
Machine hours 200 000 33 000
Direct labour hours 30 000 160 000
Direct labour costs N$900 000 N$4 000 000

During the month of January, the cost records for job order No. 806 shows the
following:
Machining Finishing
Direct materials requisitioned N$14 000 N$3 000
Direct labour costs N$600 N$1 250
Direct labour hours 30 50
Machine hours 130 10

Total costs and machine hours were as follows for 2014:

Machining Finishing
Production overhead incurred N$10 200 000 N$7 900 000
Direct labour costs N$950 000 N$3 900 000
Machine hours 220 000 32 000

REQUIRED: MARKS
What is the estimated overhead rate that should be used in the machining
7.1 4
department and the finishing department?
7.2 What is the total overhead allocated to Job No.806? 3
Assume that Job No. 806 manufactured 200 units of product, what is the
7.3 7
unit cost of Job No. 806?
If the company has a sales policy that requires a profit of 30% of sales,
7.4 2
what will be the selling price per unit of Job No.806?
Provide reasons why EC uses two different overhead allocation bases.
7.5 Also discuss why EC might use machine hours and labour costs to 4
allocate overhead costs.

Question 8 (Supp June 2015)

Dordabis Enterprises manufactures tables. In March, the two production departments had
budgeted allocation bases of 4000 machine-hours in Department 100 and 8000 direct
manufacturing labor-hours in Department 200. The budgeted manufacturing overheads for the
month were N$57 500 and N$62 500, respectively. For Job A, the actual costs incurred in the
two departments were as follows:

Department 100 Department 200

N$ N$
Direct materials purchased on account 110 000 177 500
Direct materials used 32 500 13 500
Direct manufacturing labor 52 500 53 500
Indirect manufacturing labor 11 000 9 000
Indirect materials used 7 500 4 750
Lease on equipment 16 250 3 750
Municipal Services 1 000 1 250

Job A incurred 800 machine-hours in Department 100 and 300 manufacturing labor-hours in
Department 200. The company uses a budgeted overhead rate for applying overhead to
production.

REQUIRED MARKS

8.1. Determine the budgeted manufacturing overhead rate for each department. 4

Prepare the necessary journal entries to summarise the March transactions for
8.2. 10
Department 100. (Narrations are not needed).

8.3 What is the total cost of Job A? 6

Question 9 (20 Marks – 36 Minutes) Regular Exam 2016

5.1 Fashion Limited manufactures coats and supplies you with the following information for
week 2 of April 2016:

Job N01997 Budget Actual

Direct material 5m @ N$25 per metre 4m @ N$24 per metre
Direct labour for complete job 80 hours @ N$20 per hour 75 hours @ N$20 per hour
Manufacturing overheads N$1 200.00
Number of coats 4 5

Total budgeted manufacturing overheads for April 2016 was N$28 500 and budgeted direct
labour hours are 1275 hours for the same period.
Required: Marks
9.1 Assuming that this was the only transaction for the week of April 2016, and
manufacturing overhead are allocated using the labour hours as basis, calculate:
9.1.1 The total costs for the completed Job N01997 2
9.1.2 The cost per unit of coat. 0.5
9.1.3 The selling price per coat if the company mark-up costs with 300% 0.5
9.1.4 The manufacturing overheads over or under allocated 2
Total marks for Question 9.1 5

9.2 The following details relate to contract TX29, which is the construction of a new
shopping mall in Tsumeb:

N$
Salaries and wages 2 125 000
Equipment hire 55 000
Machinery and plant sent to site 4 005 000
Raw materials issued from bulk store 1 850 000
Raw materials delivered to site by suppliers 1 655 000
Raw materials returned:
- Bulk store 55 000
- Supplier 11 550
Miscellaneous contract expenses 422 000
Raw materials on site (31 May 2016) 388 000
Plant on site (31 May 2016) 3 885 000
Work certified 7 850 000
Payments received 7 065 000
Uncertified work (work completed) 288 520
Prepaid expenses (31 May 2016) 7 620

Additional information:

- The financial year ends on 31 May of each year.

- Payment is made by architect’s certificate. Retention is 10% of the work certified.
- An amount of N$18 000 relates to salaries and wages. This amount is due and payable at
year-end, but no entries have been made in the books.
- Net income to the profit and loss account must be calculated according to the formula:
2 𝑐𝑎𝑠ℎ 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑
𝑥 𝑛𝑜𝑡𝑖𝑜𝑛𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡 𝑥
3 𝑤𝑜𝑟𝑘 𝑐𝑒𝑟𝑡𝑖𝑓𝑖𝑒𝑑

Required: Marks
Prepare the General Ledger Account for contract TX29, and the contract profit or
loss account indicating how much of the profit is taken to the statement of 15
income and expenditure on the contract so far. Balance the general ledger
accounts. (Work to the nearest N$1, if applicable)
Total marks for Question 9.2 15

Question 10 (20 marks) (36 minutes) Supplementary Exam 2016

Mr. James Chapman has recently qualified as an auditor, he and his class mate are thinking of
opening up a small firm in their home town of Rehoboth. After a review of active firms in other
small towns and interviews on how jobs use those firm’s resources, they felt they had enough
information to go ahead with the start-up. Chapman & Associates would operate using two
direct cost categories (partner labour and audit manager labour) there would also be two
indirect cost categories, namely clerical labour and general administration support. These would
yield more accurate job costs. Budgeted information for operations in 2016 is as follows:

Partner labour Audit Manager labour

Number of employees 2 10
Hours of billable time per employee 600 600
Total compensation (per employee) (N$) 84 000 30 000

Budgeted information for the two indirect cost categories is as follows:

Clerical labour General admin support

Total costs (N$) 810 000 180 000
Cost allocation base Partner labour Audit Manager labour

Required Marks
10.1 Compute the 2016 budgeted rates for
(a) partners and 3
(b) audit managers 3
10.2 Compute the 2016 budgeted indirect cost rates for
(a) clerical hours 2
(b) general admin support 2
Total marks for Questions 10.1 to 10.2 10

Calculate the budgeted costs for Chapman & Associates given the following:

Purco Ltd Max Ltd

Partners 24 16
Audit Manager 36 64

Required Marks
10.3 Calculate the cost of the two jobs for
(a) Purco Ltd 5
(b) Max Ltd 5
Question 11 (20 Marks, 36 Minutes) Regular 2017

11.1 Makuya and Company is engaged in production of engineering parts. It receives

bulk orders from bicycle manufacturers and follows job order costing. On 1
February, 2017 two jobs were in progress whereas two jobs were opened during
the year. The details are as follows:

Jobs
MC12 MC13 MC14 MC15
Work-in-process-opening (N$) 1 400 000 2 500 000 - -
Raw materials issued from stores (N$) 800 000 1 200 000 1 500 000 600 000

Direct labour hours worked (hours) 20 000 30 000 15 000 18 000

Direct labour rate per hour (N$) 20 18 16 15

Other related information is as follows:

i. Factory overhead is applied to the jobs at N$10 per labour hour.
ii. Actual factory overheads for the year amounted to N$ 900 000.
iii. Under/over applied factory overheads are charged to cost of goods sold.
iv. MC12 was completed during the year. All the goods were shipped to the customers.
v. MC13 was also completed during the year. However, about 10% of the goods were
rejected
during inspection. These were transferred to MC14 where they will be used after
necessary
adjustments.

REQUIRED: MARKS

11.1 Prepare journal entries to record all the above information 15

SUB-TOTAL MARKS 15

11.2 Explain the following terms in relation to construction contracts

REQUIRED: MARKS

11.2.1 Certified work 2

11.2.2 Retention money 2
11.2.3 Uncertified work 1
 SUB-TOTAL MARKS 5

TOTAL MARKS FOR QUESTION 11 20

Question 12 (20 Marks – 36 Minutes) Supp 2017

The Billiard Co is a Windhoek based firm which is involved in several types of businesses
including construction, architectural consultation among others. As part of its business in the
first quarter of 2016, the company has taken on a new contract (OB101) which involves
construction of a small office block and the details bellow show information about the contract:

N$

Materials purchased and issued to contract site 150 000

Rent paid on equipment 18 000

Wages paid 46 500

Overheads absorbed 24 750

Aside from the above contract, the company has been approached by a regular client, Plantic
CC for an architectural consultation on a project they are running and the following actual costs
apply:

Direct costs:
Professional labour N$ 25 000
Indirect costs:
General support N$ 15 600

Manufacturing overheads to architectural consultations are allotted at 60% of direct costs and
any over or under allocation is adjusted to cost of sales.

REQUIRED: Marks
12.1 What is the relationship between job costing and contract costing? 2
12.2 For contract (OB101), prepare the journal entries to record the amounts in the records 10
 of Billiard Co. (Narrations are not required)
12.3 For the architectural consultation done, calculate the cost of the job and clearly 6
indicate the amount of indirect costs over or under allocated.
12.4 Prepare the journal entry required to adjust for the over or under allocation as 2
calculated in 12.3 above.
TOTAL MARKS 20

Question 13 (15 Marks – 27 Minutes) Normal 2018

The Wilco Corporation is a large construction company in central Namibia and they have
several projects running for the current financial period, one of its main projects is the
construction of an administration building for a newly establish local university in the outskirts of
Windhoek..

The project is expected to take three years and the revenue expected from it is N$ 120 000 000
with retention money of 5%. The expected costs to complete the project is N$75 000 000 and
the client is expected to make a progress payment of 15 % of the contract price once the project
is 25% complete. Other payments are scheduled at 50% and 75% completion of the project.

Information related to that project for the first year is as follows:

N$
Material costs incurred 22 500 000
Labour 8 250 000
Firm plant and equipment transferred to site 3 200 000
Equipment hired 650 000
Supervisor salaries 425 000
Head office costs 355 000

There was material worth N$ 325 000 left on site at the end of the period. Plant and equipment
is depreciated at 20% on cost per annum and only the depreciated portion should be included
on the contract as that is the cost associated with the specific contract. The value of work
certified is N$ 35 000 000

REQUIRED: MARKS

13.1 Calculate the level of completion for the project; will the contractor receive a
12.5
progress payment? If so, how much will it be?
Prepare and balance off the contract account for the period concerned, only
13.2 2.5
show the notional profit.
TOTAL MARKS FOR QUESTION 13 15

Question 14 (18 Marks – 32 Minutes) Supp. 2018

The owner of the Mini market in the Pioneer’s park residential area in Windhoek is considering a
proposal by the day manager of the bakery in the mini shop to supply a local school with
sandwiches for the OVC (Orphans and Vulnerable Children) program they run at school. The
school has received a generous donation for the program and has offered N$ 12.00 per
sandwich and is expecting to feed 45 learners daily at break time under this program.

The manager is eager to provide the sandwiches to the school because it would go a long way
in improving their image and serving the corporate social responsibility of the entity. The owner
on the other hand, is also concerned with the profit potential and tasks the manager with finding
out if they will recover their costs at the minimum.

Knowing you are a student of management accounting and his close relative, the manager has
asked you to help him answer this question.

He provides you the following information which is available for the preparation of one
sandwich:

N$

2 Buttered bread slices 2.50

Sliced cheese and tomato 2.25

Labourers rate per hour * 30

Packaging material 1.25

The laborers produce six sandwiches an hour and there is sufficient labour time available to
meet the order.

REQUIRED: MARKS
14.1 Define the term job costing and give two practical examples of the concept 3
14.2 Is the scenario depicted above indicative of a job or process costing system, motivate 3
your answer?
14.3 Evaluate the proposal from the school and see if it is economically viable. 10.5
14.4 Would you advise the mini market to accept the offer from the school, motivate your 1.5
answer with at least two reasons?
TOTAL MARKS FOR QUESTION 14 18

Tutorial 6 Unit 6 Semester 1 2016

(Past exam questions)
Question 1 (June 2012 Normal)
The following data pertains to Zeton Manufacturers, which produces products E, F, and G:
Products
E F G
Machine hours (per unit) 2 1 3
Annual production volume (units) 22 000 25 000 32 000
Prime cost (per unit) N$25 N$30 N$40

For purposes of an activity-based costing exercise, the following overhead activities with an
allocated overhead cost have been identified:

N$
Set-ups 205 000
Despatch 525 000
Inspection and quality control 725 000
Machinery maintenance and depreciation 650 000
Technical department 370 000
Total overhead cost 2 475 000

The following drivers have been identified, together with the overhead activities to which they
relate:
Overhead activity Cost driver
Set-ups Number of production runs
Despatch Number of despatches
Inspection and quality control Number of inspection reports
Machinery maintenance and depreciation Machine hours
Technical department Number of engineering changes

The utilisation of the cost drivers by the three products has been summarised as follows:
Products
E F G
Production runs 52 80 73
Despatches 76 82 92
Inspection reports 128 186 86
Machine hours 44 000 25 000 96 000
Engineering changes 40 28 32

You are required to calculate the following:

1.1 The overhead absorption rate based on traditional costing methods using machine hours
as basis and the overheads allocated per product (4 Mark)
1.2 The overhead rates for each cost pool based on activity-based costing principles (2½
Marks)
1.3 Allocate the overhead cost to each product using activity-based costing principles (8½
Marks)

Question 2 (June Supp 2012)

Buzz Manufacturers Ltd produces three models chainsaw, namely the 250, 260 and 275. The
breakdown of fixed overhead expenses for the year ended 30 September 2011 is expected as
follows:
Cost pool Cost driver Quantity for the period
Order processing Customer orders 6 600
Material purchasing Suppliers invoices 7 800
Parts administration Number of parts 565
Material handling Number of movements 1 800
Labour-related Labour hours 22 500

The following cost driver analysis is pertinent:

Annual cost driver utilisation per product
Cost driver 250 260 275
Customer orders 2 100 2 500 2 000
Suppliers invoices 3 000 2 000 2 800
Numbers of parts 165 185 215
Number of movements 600 600 600
Labours hours 8 250 7 800 6 450
Total estimated overheads for the year amounted to N$1 038 575, which can be divided
between the five cost pools as follows:

Order processing N$198 000

Material purchasing 429 000
Parts administration 36 725
Material handling 93 600
Labour related 281 250

You are required to calculate the following:

2.1 The overhead absorption rate based on traditional costing methods using labour hours
as basis and the overheads allocated per product (4 Mark)
2.2 The overhead rates for each cost pool based on activity-based costing principles
(2½ Marks)
2.3 Allocate the overhead cost to each product using activity-based costing principles
(8½ Marks)

Question 3 (June 2013 Normal)

Hybrid Investments operate a job costing system. They serve medium sized businesses within
the Khomas and Erongo Regions with custom made cupboards. The following information was
obtained from the management of Hybrid Investment after a detailed costing analysis:
Overhead cost for the next year:
Setup costs N$ 90 000
Ordering costs N$ 50 000
Maintenance costs N$150 000
Electricity usage N$ 30 000
The cost drivers for these costs were planned as follows:
Number of Setups 400
Number of Orders 4 000
Machine hours 25 000
Kilowatt hours 75 000
Hybrid Investment completed two jobs during the year and the following information could be
extracted from the accounting records:
 Job A100 Job A200
Direct materials N$1 200 N$600
Direct labour N$900 N$400
Number of setups 2 1
Number of orders 10 4
Machine hours 50 40
Kilowatt hours 60 25
Direct labour hours 40 20
Units completed 250 100
The company budgeted 5 000 direct labour hours for the year.

Required:
3.1 Determine the unit cost of each job using direct labour hours to apply (8)
overhead. Round answers to two decimal places.
3.2 Determine the unit cost for each job using Activity Based Costing (ABC). (18)
Round answers to two decimal places.
3.3 Which method produces the more accurate cost assignment and why? (4)

Question 4 (June 2013 Supp)

Brown Manufacturing has four categories of overhead. The four categories and expected
overhead costs for each category for next year are listed below:

N$
Maintenance 200 000
Materials handling 32 000
Setups 100 000
Inspection 120 000
Currently, overhead is applied using a predetermined overhead rate based upon budgeted
direct labour hours. For next year, 50 000 direct labour hours are budgeted. The company has
accepted a new job and the sales manager wanted to have a cost estimate. The production
department provided the following information for the new job:
Direct materials N$6 000
Direct labour (1 000 hours) N$10 000
Machine hours 500
 Number of material moves 12
Number of setups 2
Number of inspections 10
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-
based cost driver (direct labour hours). With the information supplied by the production
department, the bookkeeper requested you to assist them with the introduction of an activity
based costing system. You collected the following expected activity for the four activity based
cost drivers:
Machine hours 20 000
Material moves 1 600
Setups 2 500
Quality inspections 4 000
Required:
4.1 Determine the amount of overhead that would be allocated to the proposed job if a
plant wide rate with direct labours is used. 4
4.2 Determine the total cost of the proposed job. 3
4.3 Determine the amount of overhead that would be applied to the proposed project if
activity based drivers are used. 4
4.4 Determine the total cost of the proposed job if activity based costing is used. 7

Question 5 (June 2014 Normal)

Jabez Enterprises manufactures a variety of products for the local market. The company has
been using labour hours to calculate an overhead allocation rate. The total budgeted overhead
for the year is N$955 980, the labour hours are estimated at 5 500 hours and machine hours are
estimated at 5 000 hours.

The newly appointed financial director proposed that the traditional costing system should be
changed to an Activity Based Costing (ABC) system. The management accountant provided
you with the following information relating to the overheads:

Cost pool Budgeted Overhead Cost driver and activity

expense level
Set-ups N$169 500 500 set-ups
Quality control and testing N$222 600 1 500 quality tests
Material ordering N$192 780 1 620 orders
Packaging and dispatch N$68 400 192 packages
Labour related activities N$126 500 5 500 labour hours
Machine related activities N$176 200 5 000 machine hours
----------------
Total Budgeted overhead N$955 980
=========

REQUIRED MARKS
5.1 Compute an overhead allocation rate, using traditional costing methods, based
on:
5.1.1 Labour hours 3
5.1.2 Machine hours 3
5.2. Compute cost driver rates using the principles of activity based costing. 6

Question 6 (June 2014 Supp)

The following details pertain to the production process at Enviro Corporation:

Cost pool Budgeted Overhead Cost driver and activity

expense level
Labour related activities N$200 150 8 006 labour hours
Machine related activities N$320 500 6 410 machine hours
Set-ups N$92 600 4 630 set-ups
Engineering designs N$116 280 1 500 designs
Pressure processing N$465 750 1 863 assembly relays
Material handling N$228 500 200 material orders
----------------
Total Budgeted overhead N$955 980
=========
REQUIRED MARKS
6.1 Compute an overhead allocation rate, using traditional costing methods, based
on:
6.1.1 Labour hours 3
6.1.2 Machine hours 3
6.2. Compute activity rates for the various cost pools. (Work to two decimal places.) 6

Question 7 (Normal June 2015)

Cost Accounting Ltd manufactures three products. The company allocates overhead costs as a
rate per total direct labour hour.

The following cost driver values have been identified:

Alpha Beta Gamma

Machine hours / unit 0.70 0.30 0.50

Production units 5 000 3 500 8 000

Percentage of expert work 30% 20% 50%

Number of orders packed 4 8 23

Labour hours 1 200 800 1 500

An analysis of the manufacturing overhead cost for the period shows the following:

Overhead
Activities
cost

Machine costs 265 000

Expert consultation 98 500

Packing 15 000

Total 378 500

Required Marks
 Calculate the overhead rate that they are currently applying to the
7.1 1.5
products.

Allocate the manufacturing overhead costs using principles of activity based

7.2 12
costing.

Why is activity based costing considered for manufacturing overhead cost

7.3 1.5
allocation?

Question 8 (Supp June 2015)

Heated Ltd makes two types of geysers, a 150 litres geyser and a 250 litres geyser. They have
traced overhead costs to four activity centres, and annual cost and activity data for each centre
is given below:

Activity Cost driver Cost driver level Overhead cost

150 litre 250 litre N$
Purchasing Number of purchase orders 600 300 189 000
Planning Number of orders 300 375 486 000
Quality control Number of test 675 450 1 012 500
Machine related Machine hours 3 000 750 2 812 500

The following table gives prime cost for the two products:

Product cost 150 litre 250 litre

Raw material 305 900 601 300
Direct labour 60 000 75 000

REQUIRED MARKS

Calculate the costs per unit of cost driver as well as the overheads allocated to
8.1. 8
the 250 litre model using activity based costing.

Using your answer above, calculate the manufacturing cost of the 250 litre
8.2. 2
model
Question 9 (15 marks) (27 minutes) Regular Exam 2016

The management accountant at Otavi Engineering attended ICAN sponsored seminar on

activity based costing and was quite impressed by its practical application.

After liaising with production personnel, he prepared the following data on cost drivers and their
estimated volume.

Products
Total

Exe Wye Zed

Units produced 50 000 30 000 10 000 90 000

Direct material costs per unit (N$) 80,00 30,00 110,00

Direct labour cost per unit (N$) 30,00 30,00 30,00

Cost drivers
Total

Exe Wye Zed

Number of set-ups 250 150 100 500

Machine hours 5 000 3 000 4 000 12 000

Direct labour hours 50 000 30 000 10 000 90 000

Number of inspection 100 50 50 200

The overhead costs incurred in each of the four activities were as follows:

Activity Cost (N$)

Assembly 720 000

Inspection 180 000

Set-up 300 000

Machining 1 500 000

 Total overhead costs 2 700 000

Required: Marks
9.1 Determine the cost driver rate for each activity 2
9.2 Allocate the overheads to the products based on the cost drivers 9
9.3 Calculate the overhead cost per unit for each product 3
9.4 Calculate the production cost per unit for product Wye. 1
Total marks for Question 6 15

Question 10 (10 marks) (18 minutes) Supplementary Exam 2016

Windhoek Mechanical CC produces a variety of products for the local market. The company has
been using labour hours to calculate an overhead allocation rate. The total budgeted overhead
for the year is N$ 827 250, the labour hours are estimated at 4850 hours and machine hours are
estimated at 4 200 hours.

The newly appointed financial director proposed that the traditional costing system should be
changed to an Activity Based Costing (ABC) system. You were provided with the following
information relating to the overheads:

Cost pool Budgeted Overhead Cost driver and activity level

expense
Set-ups N$ 170 000 800 set-ups
Material ordering N$ 156 300 1 250 orders
Packaging and dispatch N$ 198 150 250 packages
Labour related activities N$187 540 4 850 labour hours
Machine related activities N$115 260 4 200 machine hours

Total Budgeted overhead N$ 827 250

Required: Marks
10.1 Compute an overhead allocation rate, using traditional costing methods,
based on:
10.1.1 Labour hours 2
10.1.2 Machine hours 2
10.2. Compute cost driver rates using the principles of activity based costing. 6
Total marks for Question 11 10

Question 11 (15 Marks, 27 Minutes)Regular 2017

Dinapama Manufacturing and Textiles (Pty) Ltd is a labour intensive enterprise which
categorises its overhead costs into maintenance, material handling, setups and inspection. One
of its core business activities is to manufacture school uniforms, corporate attires and any other
textile activities as per customers’ demand and specification.

On 1 April 2017, the company has received an order from Delta High School to supply them
with 800 school uniforms. It is the company’s policy to finalise a customer’s order within 30 days
after receipt. The production manager has estimated the overhead costs for each category for
this order to be as follows:

N$
Maintenance 2 000
Materials handling 900
Setups 1 500
Inspection 1 200

During the same month, the company estimates that direct labour hours will amount to 1 400.
For the past two years, overhead costs have been applied using a predetermined overhead rate
based on budgeted direct labour hours. The company has been applying the traditional method
over the past years in absorbing its overhead costs; and it decides to implement the Activity
Based Costing (ABC) starting with the order from Delta HS onwards.

Additional information provided by the production department in respect of the 800 school
uniforms is as follows:

Direct materials N$ 700

Direct labour (N$ 3/hour) N$ 900
Machine hours 40
Number of material moves 6
Number of setups 3
Number of inspections 8
The company expects the following activity based cost drivers:

Machine hours 100

Material moves 300
Setups 500
Inspections 400

Required: Answer the following questions: Marks

11. Determine the amount of overhead that would have been absorbed if the traditional
1. method was to be used. 4
11. Compute the total cost of manufacturing the placed order according to ABC. 9.5
2.
11. Use your answer in (11.2.), to compute the cost per school uniform. 1.5
3.
TOTAL MARKS FOR QUESTION 11 15

Question 12 (15 Marks, 27 Minutes) Supp. 2017

Nyangana Engineering makes and sells two products, Part NE1 and NE2.
Data for production and sales each month are as follows:

Part NE1 Part NE2

Sales demand 4 000 units 8 000 units
Direct material cost/unit N$ 20 N$ 10
Direct labour hours/unit 0.10 hour 0.20 hours
Direct labour cost/unit N$ 2 N$ 4

Production overheads are N$ 580 000 each month. These are absorbed on a direct labour
hour basis. An analysis of overhead costs suggests that there are four main activities that cause
overhead expenditure.

Part Part
Activity Total cost Cost driver
NE1 NE2
N$

Batch setup 100 000 No. of set-ups 10 10

Order handling 200 000 No. of orders 24 16

Machining 120 000 Machine hours 6 000 9 000
Quality control 160 000 No. of checks 18 14
 REQUIRED: MARKS

12.1 Compute the overhead absorption rate based on direct labour hours.

12.2 Compute cost driver rates using the principles of activity based costing.
Allocate the production overhead costs using principles of activity based
12.3
costing to the products
a) Compute the full production costs for Parts: NE1 and NE2, using
activity based costing.

b) With the help of your answer in (a), compute the production cost
per unit for each part.
12.4
c) With the help of your answer in (b), suppose the company adds a
mark of 25% to determine the selling price for each product.
Determine the profit/(loss) that would have been made by
Nyangana Engineering based on the given respective demand.

Question 13 (15 Marks, 27 Minutes) Normal 2018

You have been appointed as the assistant-management accountant at The Feed Master Ltd,
this company specialises in animal food manufacturing. The following information relates to
three types of chicken food: Glow, Med and Flam. The output in units is respectively 160 bags,
120 bags and 100 bags. The products are produced in production runs of 20 units and sold in
batches of 5 units. The cost to manufacture is as follows:
Glow Med Flam
Direct material (per unit) N$140 90% of the cost of Glow N$120
Direct labour (per unit) N$228 N$221 N$214
Machine hours (per unit) 8 6 5

The production overhead costs for the period and the relevant cost drivers are as follows:
Factory rent N$5 000
Factory depreciation N$1 000
Supervision N$15 000
Machine set-up costs N$12 502 Number of production runs
Stores receiving N$17 400 Requisitions raised
Distribution costs N$34 086 Orders executed

Factory rent, factory depreciation and supervision costs are allocated based on machine hours.
The stores raised a total of 75 requisitions, of which 25 were for Glow. Flam required 20% more
requisitions than Glow.
 REQUIRED: MARKS
13.1 Calculate the allocation Rate Per Machine Hour 2
13.2 Calculate the Total Cost for each product using Activity-Based Costing 13
System
TOTAL MARKS FOR QUESTION 13 15

Question 14 (10 Marks, 18 Minutes) Supp. 2018

Printop Ltd is an entity operating in the print and sign industry, they are thinking of adapting a
new system of allocating their manufacturing overheads which are in the following categories.

Material requisitions Machine set up

Operational costs Quality control

You are an intern at the company and given your exposure to management accounting have
been asked to advise the company in this endeavor.

REQUIRED: Contextualize your answers as much as possible: MARKS

14.1. Why is it that companies consider ABC more superior over the traditional method? 3
14.2. Identify the 7 steps followed whenever one uses Activity Based Costing. 7
TOTAL MARKS FOR QUESTION 14 10