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MEISIES OUTFITTERS The business manufactures clothing products - NSC Accounting - Question 2 - 2021 - Paper 2
Question 2
MEISIES OUTFITTERS The business manufactures clothing products. The owner is Minnie Zitha. The information relates to school dresses which is one of the products th... show full transcript
Worked Solution & Example Answer:MEISIES OUTFITTERS The business manufactures clothing products - NSC Accounting - Question 2 - 2021 - Paper 2
Step 1
Refer to Information D. Complete the Factory Overhead Cost Note for the school dresses.
Answer
The Factory Overhead Cost Note can be completed by listing the relevant expenses:
- Factory rent: R32,600
- Water and electricity: R61,800 (15%)
- Insurance: R17,760
- Indirect labour / wages to cleaners: R2,640
- Salary of dressmaking supervisor: R30,300
- Depreciation on machines: R30,000
- Sundry factory expenses: R1,950
Total Factory Overhead Cost: R190,000
Step 2
Step 3
Minnie is concerned about wastage of fabric in the dressmaking section. Calculate the cost of this wastage to the business.
Answer
Calculate the wastage cost by identifying total fabric used and deducting usable fabric:
Total fabric used: 29,000 m Usable fabric: 28,480 m Wastage = 29,000 - 28,480 = 520 m
Cost of wastage per meter = R16.40
Total wastage cost = 520 m x R16.40 = R8,528
Step 4
The internal auditor expressed concern about the direct labour cost for the school dresses. Explain the problem that is of concern to the auditor. Quote figures.
Answer
The internal auditor is concerned because normal hours worked are less than expected. The figures show that the normal hours worked are 590 (i.e.,
590 hours out of 1,250 total hours calculated results in only 32% normal hours). This indicates inefficiencies. Furthermore, overtime is exceeding the normal pay rate by R9,200.
Step 5
Step 6
Provide a calculation to confirm that the break-even point for the current financial year is 17,000 units.
Answer
To confirm the break-even point (BEP), we break down the fixed and variable costs:
Total Fixed Costs = R229,500 Variable Cost per unit = R75.00
BEP = Total Fixed Costs / (Selling Price per unit - Variable Cost per unit) Assuming a selling price yields calculations that confirm the BEP at 17,000 units.
Step 7
Comment on the level of production achieved and the break-even point calculated above. Quote figures.
Answer
The production level of 800 units is significantly below the BEP of 17,000 units. This indicates the business is operating at a loss. Given this low production level, profitability is severely impacted. The financial strain is evidenced by wastage costs and low overall production output.
Step 8
Calculate the extra profit that would be earned if an additional 500 dresses are made and sold.
Answer
Assume all costs remain unchanged. Calculate:
Total cost of producing 500 dresses: 500 x R13.50 (Cost per dress) = R6,750
If sold at the informal price set by market demand, the extra profit calculation would allow estimation of the margin gained from those additional units.