How often Direct and absorption costing is asked

Where it was asked

What costs marks here

The questions

1. Oct/Nov 2015, Q1.114 marks

   Question 1 relates to two related companies. Part A concerns Steinhopp Time Pieces (Pty) Ltd, which manufactures and supplies time pieces (including a model called Lerox) and values inventory using the FIFO method. Part B concerns Steinhopp Golf Carts (Pty) Ltd, a subsidiary of Steinhopp Time Pieces, which manufactures and supplies golf carts and has been awarded a contract by Menlyn Country Club to supply golf carts for the whole of the 2015 financial year. For Steinhopp Time Pieces (Pty) Ltd's Lerox product, the actual results for the year ended 30 September 2015 were: 3 800 units sold and 3 300 units produced; a selling price of R240 per unit; direct materials of R110 per unit; direct labour of R25 per unit; variable manufacturing overheads of R15 per unit; fixed manufacturing overheads absorbed of R20 per unit; total variable selling costs of R68 400; total non-manufacturing costs of R178 400; and no over- or under-applied overheads. The budgeted figures for the year ending 30 September 2016 are: a selling price of R250 per unit; direct materials of R120 per unit; direct labour of R30 per unit; variable manufacturing overheads of R16 per unit; and total fixed manufacturing overheads of R75 000. Additional information: (1) the budgeted quantity schedule for the year ending 30 September 2016 shows budgeted sales of 4 100 units, opening inventory of 500 units and closing inventory of 400 units; (2) variable selling costs for the 2016 budgeted year are expected to increase by R2 per unit compared with the 2015 actual figures; and (3) the R178 400 of non-manufacturing costs incurred in the year ended 30 September 2015 comprised both fixed administration costs and variable selling costs, and the fixed administration cost component is expected to increase by 10% in the 2016 budgeted year. Required: prepare the budgeted statement of comprehensive income of Steinhopp Time Pieces (Pty) Ltd for Lerox for the year ending 30 September 2016, using the absorption costing method.

2. Oct/Nov 2015, Q1.2.15.5 marks

   Question 1 relates to two related companies. Part A concerns Steinhopp Time Pieces (Pty) Ltd, which manufactures and supplies time pieces (including a model called Lerox) and values inventory using the FIFO method. Part B concerns Steinhopp Golf Carts (Pty) Ltd, a subsidiary of Steinhopp Time Pieces, which manufactures and supplies golf carts and has been awarded a contract by Menlyn Country Club to supply golf carts for the whole of the 2015 financial year. Steinhopp Golf Carts (Pty) Ltd, a subsidiary of Steinhopp Time Pieces, manufactures and supplies golf carts and has been awarded a contract by Menlyn Country Club to supply golf carts for the whole of the 2015 financial year. For its Fabulous Golf Cart Range, the company's total production cost in the 2014 financial year was R26 000 000 when 4 000 units were produced, and R36 000 000 when 6 000 units were produced. In 2015 the company manufactured and sold 500 golf carts at a selling price of R15 000 per cart. The production cost structure (i.e. the variable production cost per unit and the total fixed production cost) in 2015 is identical to that of 2014, and this cost structure remains unchanged for any production quantity between 1 and 10 000 units. Non-manufacturing costs must be ignored. Required: calculate the breakeven point, in units (golf carts), for the Fabulous Range for 2015.

3. Oct/Nov 2015, Q1.2.22.5 marks

   Question 1 relates to two related companies. Part A concerns Steinhopp Time Pieces (Pty) Ltd, which manufactures and supplies time pieces (including a model called Lerox) and values inventory using the FIFO method. Part B concerns Steinhopp Golf Carts (Pty) Ltd, a subsidiary of Steinhopp Time Pieces, which manufactures and supplies golf carts and has been awarded a contract by Menlyn Country Club to supply golf carts for the whole of the 2015 financial year. Using the same Steinhopp Golf Carts (Pty) Ltd Fabulous Range information (2014 total production cost of R26 000 000 at 4 000 units and R36 000 000 at 6 000 units; a 2015 selling price of R15 000 per cart; the same variable-cost-per-unit and total fixed cost structure applying to any output between 1 and 10 000 units; and non-manufacturing costs ignored), calculate the profit or loss for 2015 based on actual sales of 500 golf carts, and state clearly whether the result is a profit or a loss.

4. Oct/Nov 2015, Q1.2.33 marks

   Question 1 relates to two related companies. Part A concerns Steinhopp Time Pieces (Pty) Ltd, which manufactures and supplies time pieces (including a model called Lerox) and values inventory using the FIFO method. Part B concerns Steinhopp Golf Carts (Pty) Ltd, a subsidiary of Steinhopp Time Pieces, which manufactures and supplies golf carts and has been awarded a contract by Menlyn Country Club to supply golf carts for the whole of the 2015 financial year. Again using the Steinhopp Golf Carts (Pty) Ltd Fabulous Range information (2014 total production cost of R26 000 000 at 4 000 units and R36 000 000 at 6 000 units; a 2015 selling price per golf cart of R15 000; the same cost structure applying for any production quantity between 1 and 10 000 units; and non-manufacturing costs ignored), calculate the number of golf carts the company should sell in 2015 in order to earn a profit of R10 000 000.

5. May/Jun 2015, Q3(a)10 marks

   Phembani (Pty) Ltd manufactures and sells model locomotives to hobby shops. The selling price per model locomotive was R500 in 2015 and is expected to rise by 10% per year from 2016 onwards. There was no opening inventory at the start of 2015. Unit movements were as follows (2015 figures are actual, 2016 figures are budgeted): in 2015, 1 300 units were manufactured and 1 000 units were sold, leaving an unknown closing inventory; in 2016, 1 400 units are budgeted to be manufactured and 1 500 units budgeted to be sold, again with closing inventory to be determined. Rendani van Tonder, the Chief Financial Officer of Phembani, supplied the following cost information; the company's financial year ends on 31 December. Variable cost per unit for 2015 and 2016 respectively: direct material R100,00 and R120,00; direct labour R30,00 and R35,00; variable manufacturing overheads R20,00 and R25,00; variable selling costs R2,00 and R2,50. Total fixed costs for 2015 and 2016 respectively: fixed manufacturing overheads R60 000,00 and R66 000,00; fixed selling costs R94 000,00 and R100 000,00; fixed administrative overheads R46 000,00 and R48 000,00. Phembani (Pty) Ltd applies the weighted average method of inventory valuation. Round all calculations to two decimals throughout. Using the cost and unit information given for Phembani (Pty) Ltd, prepare the budgeted statement of comprehensive income for the year ended 31 December 2016 according to the direct (variable) costing method, applying the weighted average method of inventory valuation and rounding to two decimals throughout your calculations.

6. May/Jun 2015, Q3(b)10 marks

   Phembani (Pty) Ltd manufactures and sells model locomotives to hobby shops. The selling price per model locomotive was R500 in 2015 and is expected to rise by 10% per year from 2016 onwards. There was no opening inventory at the start of 2015. Unit movements were as follows (2015 figures are actual, 2016 figures are budgeted): in 2015, 1 300 units were manufactured and 1 000 units were sold, leaving an unknown closing inventory; in 2016, 1 400 units are budgeted to be manufactured and 1 500 units budgeted to be sold, again with closing inventory to be determined. Rendani van Tonder, the Chief Financial Officer of Phembani, supplied the following cost information; the company's financial year ends on 31 December. Variable cost per unit for 2015 and 2016 respectively: direct material R100,00 and R120,00; direct labour R30,00 and R35,00; variable manufacturing overheads R20,00 and R25,00; variable selling costs R2,00 and R2,50. Total fixed costs for 2015 and 2016 respectively: fixed manufacturing overheads R60 000,00 and R66 000,00; fixed selling costs R94 000,00 and R100 000,00; fixed administrative overheads R46 000,00 and R48 000,00. Phembani (Pty) Ltd applies the weighted average method of inventory valuation. Round all calculations to two decimals throughout. Using the same cost and unit information for Phembani (Pty) Ltd, prepare the budgeted statement of comprehensive income for the year ended 31 December 2016 according to the absorption costing method, applying the weighted average method of inventory valuation and rounding to two decimals throughout your calculations.

7. Oct/Nov 2013, Q1.32 marks · multiple choice

   Question 1 is a multiple-choice section made up of ten short questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you consider correct. Nkandla (Pty) Ltd absorbs its production overheads on the basis of machine hours. In the preceding accounting period, the budgeted production overheads were R200 000 against actual production overheads of R225 000; budgeted machine hours were 40 000 against actual machine hours of 35 000; and budgeted units produced were 25 000 against actual units produced of 22 500. Determine whether the overheads for the preceding period were over- or under-applied, and by how much: A. R50 000 over applied; B. R50 000 under applied; C. R45 000 under applied; D. R45 000 over applied.

8. Oct/Nov 2013, Q1.42 marks · multiple choice

   Question 1 is a multiple-choice section made up of ten short questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you consider correct. A chicken farm applies a predetermined overhead recovery rate based on machine hours. For the year, budgeted farming overheads amounted to R600 000, while actual farming overheads amounted to R750 000. During the year the farm absorbed R810 000 of farm overheads based on 125 000 actual machine hours worked. Calculate the farm's budgeted level of machine hours for the year (rounded to the nearest whole number): A. 92 395 hours; B. 125 000 hours; C. 92 593 hours; D. 126 000 hours.

9. Oct/Nov 2013, Q2.17 marks

   The management accountant of Vivo (Pty) Ltd, a company that manufactured a single product for the year ended 31 October 2013, has supplied the following figures. Variable prime costs per unit were R120 in 2013 (R105 in 2012), while the selling price per unit was R200 in 2013 (R180 in 2012). Overhead costs comprised variable manufacturing overheads of R45 per unit, fixed manufacturing overheads of R150 000, fixed selling and administrative overheads of R80 000, and variable selling and administrative overheads of R2 per unit. Additional information states that Vivo (Pty) Ltd manufactures 20 000 units every year, that 15 000 units were sold during 2013, and that apart from the change in prime costs, the company's cost structure stayed the same as in 2012. The opening inventory of 2 500 units, valued for IFRS (financial accounting) purposes at 1 November 2012, amounted to R393 750, and there was no opening inventory at 1 November 2011. The company applies the weighted average method of inventory valuation. Using the direct costing method, draw up the contribution statement of comprehensive income for Vivo (Pty) Ltd for the year ended 31 October 2013.

10. Oct/Nov 2013, Q2.28 marks

    The management accountant of Vivo (Pty) Ltd, a company that manufactured a single product for the year ended 31 October 2013, has supplied the following figures. Variable prime costs per unit were R120 in 2013 (R105 in 2012), while the selling price per unit was R200 in 2013 (R180 in 2012). Overhead costs comprised variable manufacturing overheads of R45 per unit, fixed manufacturing overheads of R150 000, fixed selling and administrative overheads of R80 000, and variable selling and administrative overheads of R2 per unit. Additional information states that Vivo (Pty) Ltd manufactures 20 000 units every year, that 15 000 units were sold during 2013, and that apart from the change in prime costs, the company's cost structure stayed the same as in 2012. The opening inventory of 2 500 units, valued for IFRS (financial accounting) purposes at 1 November 2012, amounted to R393 750, and there was no opening inventory at 1 November 2011. The company applies the weighted average method of inventory valuation. Using the absorption costing method, draw up the statement of comprehensive income for Vivo (Pty) Ltd for the year ended 31 October 2013.

11. May/Jun 2013, Q1.32 marks · multiple choice

    Question 1 is a multiple-choice question section made up of ten individual questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you believe is correct. Under the absorption costing method, product cost is equal to which of the following?

12. May/Jun 2013, Q1.42 marks · multiple choice

    Question 1 is a multiple-choice question section made up of ten individual questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you believe is correct. For the month ended 30 April 2013, the following information is available: opening inventory was 10 000 units and closing inventory was 8 000 units; net profit before tax calculated using absorption costing was R280 000,00; the fixed cost per unit included in opening inventory was R7,50; and the fixed cost per unit included in closing inventory was R9,00. If direct (variable) costing were used instead of absorption costing, what would happen to the net profit before tax for the month ended 30 April 2013?