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INFINITY HATS The information relates to Infinity Hats, a business that manufactures one type of hat - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
INFINITY HATS The information relates to Infinity Hats, a business that manufactures one type of hat. The financial year ended on 28 February 2017. REQUIRED: 3.2.... show full transcript
Worked Solution & Example Answer:INFINITY HATS The information relates to Infinity Hats, a business that manufactures one type of hat - NSC Accounting - Question 3 - 2017 - Paper 1
Step 1
Prepare the Factory Overhead Cost Note
Answer
To prepare the Factory Overhead Cost Note, the following costs need to be included:
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Indirect Factory Materials: Cost incurred for indirect materials purchased.
- Total Indirect Materials = R8,750 + R5,950 = R14,700.
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Salaries and Wages: 45% of total salaries are factory-related.
- Total Salaries = R2,900,000;
- Factory Salaries = R2,900,000 * 0.45 = R1,305,000.
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Rent Expense: To allocate rent for the factory. Total rent = R291,000; factory space = 2,400 m², while total space = 3,000 m².
- Factory Rent Expense = (R291,000 * (2,400 / 3,000)) = R232,800.
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Insurance: Needs to be calculated based on the allocation ratio. Total insurance = R49,200; factory's portion = 4 parts.
- Factory Insurance = (R49,200 * (4 / 10)) = R19,680.
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Telephone: 20% allocated to the factory.
- Total Telephone = R28,800;
- Factory Telephone = (R28,800 * 0.20) = R5,760.
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Sundry Factory Expenses: This will directly impact factory overhead.
By summing these costs, we can conclude the factory overhead costs.
Step 2
Complete the Production Cost Statement for the year ended 28 February 2017
Answer
The production cost statement should include:
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Direct Materials: Based on the raw materials issued for production and indirect materials.
- Total = Raw Materials + Indirect = R7 + R36,000 = R43,000.
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Direct Labour: From previous calculations, allocate factory salaries.
- Direct Labour = R1,305,000.
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Prime Cost: Sum of direct materials and direct labour.
- Prime Cost = Total Direct Materials + Direct Labour = R43,000 + R1,305,000 = R1,348,000.
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Factory Overhead: Sum calculated for indirect materials, salaries, rent, insurance, telephone, and sundry.
- Factory Overhead Total = (R14,700 + R1,305,000 + R232,800 + R19,680 + R5,760 + R189,856) = R1,767,796.
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Total Manufacturing Cost: Sum of Prime Cost and Factory Overhead.
- Total Manufacturing Cost = Prime Cost + Factory Overhead = R1,348,000 + R1,767,796 = R3,115,796.
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Cost of Production of Finished Goods: Accounting for work-in-process at the beginning and end of the year.
- Cost of Production = Total Manufacturing Cost - Work-in-Process = R3,115,796 - (R94,000 - R0) = R3,021,796.
Step 3
Infinity Hats are considering importing raw materials instead of the ones they are currently paying
Answer
Before deciding to import raw materials, Infinity Hats should consider the following points:
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Exchange Rate Fluctuations: Variations in exchange rates can impact the cost of imported materials, potentially increasing the overall production cost.
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Import Duties: They should clearly understand possible tariffs and import duties, which could significantly alter the expenses of imported goods.
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Quality of Raw Materials: Assessing whether the imported materials meet the same quality standards as the current supplies may also affect final product quality and brand reputation.