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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
To complete the Factory Overhead Cost Note, the relevant figures must be compiled. The total costs including:
- Factory rent: R32,600
- Water and electricity: R81,600 x 15% = R12,240
- Insurance: R20,720 x 1/3 = R6,907
- Indirect labour/wages to cleaners: R155,760 x (90/950) or (26,400 x 0.9 = 2,640)
- Salary of dressmaking supervisor: R30,300
- Sundry factory expenses: R1,950
The total would be calculated as:
Step 2
Calculate the total cost of production of school dresses produced.
Answer
The total cost of production is derived from the formula:
Total Cost = Direct Material Cost + Direct Labour Cost + Overheads
Using the information provided:
- Direct material: R475,600
- Direct labour: R535,450
- Overheads: R190,450
Thus, the total cost is:
Step 3
Minnie is concerned about wastage of fabric in the dressmaking section. Calculate the cost of this wastage to the business.
Answer
To calculate the cost of wastage, the formula is:
Wastage = rac{(520 ext{ dresses produced}) - (28,480 ext{ m})}{ ext{Cost per meter}}
Where:
- Cost per meter: R16.40
Thus, the wastage cost is calculated as:
Wastage amount:
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 auditor is concerned that the direct labour costs exceed normal expectations, showing:
- Regular hours less than normal by 590 hours (320 being the average) means labour costs are higher relative to output.
- Direct labour cost is R5.82 per hour, which escalates to R8.36 with overtime.
Thus, the excess costs indicate inefficiencies.
Step 5
Step 6
Provide a calculation to confirm that the break-even point for the current financial year is 17 000 units.
Answer
The formula for break-even point is:
BEP = rac{Fixed Costs}{Sales Price per Unit - Variable Cost per Unit}
In this case, costs were given to be:
- Fixed Costs: R229,500
- Sales Price: R75.00 per unit
Thus,
BEP = rac{229{,}500}{75 - 61.50} = 17{,}000 ext{ 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 below the break-even point of 17,000 units, indicating that profits are not being realized. The production only covers material costs, emphasizing inefficiency.
Step 8
Calculate the extra profit that would be earned if an additional 500 dresses are made and sold. Assume that all costs are unchanged.
Answer
Assuming all costs are unchanged and the profit margin remains:
Profit from additional units = 500 x (Selling Price - Cost per Unit)
Thus:
Extra Profit = 500 x (R13.50) = R6{,}750.