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LADOO MANUFACTURERS The business manufacturers leather purses - NSC Accounting - Question 3 - 2023 - Paper 2

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LADOO MANUFACTURERS The business manufacturers leather purses. The financial year ended on 28 February 2023. REQUIRED: 3.1.1 Refer to Information C. Calculate th... show full transcript

Worked Solution & Example Answer:LADOO MANUFACTURERS The business manufacturers leather purses - NSC Accounting - Question 3 - 2023 - Paper 2

Step 1

Refer to Information C. Calculate the factory overhead cost.

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Answer

To calculate the factory overhead cost, we need to account for the omitted expenses:

  1. Insurance: The total insurance premium is R235 950. The portion for the factory is:

    ext{Factory insurance} = R235950 imes rac{2}{3} = R157300

  2. Water and Electricity: The total allocated cost for water and electricity needs to be shared according to floor space. The total area is 560 m² + 240 m² + 160 m² = 960 m².

    The factory allocation:

    ext{Factory water and electricity} = R69 200 imes rac{560}{960} = R40 400

  3. Rent: The rent of R316 000 should be corrected using the correct ratio of 5:2:1. The part allocated to the factory is:

    ext{Factory Rent} = R316 000 imes rac{5}{8} = R197 500

  4. Total Factory Overhead Cost Calculation: Totaling these values gives:

    extTotalOverheadCost=R2,638,600+R157,300+R40,400+R197,500=R3,033,800 ext{Total Overhead Cost} = R2,638,600 + R157,300 + R40,400 + R197,500 = R3,033,800

    Thus, the corrected factory overhead cost is R3,033,800.

Step 2

Prepare the Production Cost Statement on 28 February 2023.

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Answer

The Production Cost Statement reflects the costs incurred for the production of leather purses for the period ending 28 February 2023. The components of the statement are as follows:

  1. Direct Material Cost:
    This includes the cost of materials used in production. Assuming direct material costs remain unchanged, the balance will be:

    extDirectMaterialCost=R6,750,000 ext{Direct Material Cost} = R6,750,000

  2. Direct Labor Cost:

    Given the wage rates and worker hours:

    • Normal working hours (40 workers × 1,920 hours each × R60/hour):
      extNormalLaborCost=40imes1,920imes60=R4,608,000ext{Normal Labor Cost} = 40 imes 1,920 imes 60 = R4,608,000
    • Overtime labor cost: R1,142,000

    Thus, total direct labor cost:

    extTotalDirectLaborCost=R4,608,000+R1,142,000=R5,750,000 ext{Total Direct Labor Cost} = R4,608,000 + R1,142,000 = R5,750,000

  3. Factory Overhead Cost:

    From the previous question:

    extFactoryOverheadCost=R3,033,800 ext{Factory Overhead Cost} = R3,033,800

  4. Total Manufacturing Cost:

    This includes all costs:

    extTotalManufacturingCost=R6,750,000+R5,750,000+R3,033,800=R15,533,800 ext{Total Manufacturing Cost} = R6,750,000 + R5,750,000 + R3,033,800 = R15,533,800

  5. Work-in-progress at the beginning of the year: R542,000

  6. Cost of Production of Finished Goods:

    Calculate the ending work-in-progress, deducting as applicable.

    The overall cost statement:

    ComponentAmount
    Direct Material CostR6,750,000
    Direct Labor CostR5,750,000
    Factory Overhead CostR3,033,800
    Work-in-progress at BeginningR542,000
    Total Manufacturing CostR15,533,800

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