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3.1 Choose a cost category from COLUMN B that matches the example in COLUMN A - NSC Accounting - Question 3 - 2024 - Paper 2
Question 3
3.1 Choose a cost category from COLUMN B that matches the example in COLUMN A. Write only the letter (A–D) next to the question numbers (3.1.1 to 3.1.3) in the ANSWE... show full transcript
Worked Solution & Example Answer:3.1 Choose a cost category from COLUMN B that matches the example in COLUMN A - NSC Accounting - Question 3 - 2024 - Paper 2
Step 1
3.2 Calculate the correct factory overhead cost by taking into account the errors and omissions.
Answer
To calculate the correct factory overhead cost, adjustments need to be made for the omitted expenses and the misallocated costs:
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Water and Electricity Expense: Let's say the omitted expense was R40,000, where R30,000 (75%) should be allocated to the factory and R10,000 (25%) to administration. Adjust factory overhead by adding R30,000.
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Rent Expense Adjustment: The original rent was R142,800. Share this based on the floor area:
- Factory share = (220 / 420) * 142800 = R 75,600
- Sales share = (120 / 420) * 142800 = R 40,800
- Administration share = (80 / 420) * 142800 = R 26,400 Thus, adjust factory overhead by adding R75,600 and subtracting the previously recorded R142,800, yielding an adjustment of R-66,000.
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Insurance Expense Adjustment: Reallocate the incorrect insurance cost of R48,000. The correct allocation is as follows using the ratio 5:2:1:
- Factory share = (5 / 8) * 48000 = R30,000
- Sales share = (2 / 8) * 48000 = R12,000
- Administration share = (1 / 8) * 48000 = R6,000 Thus, adjust factory overhead by adding R30,000.
Adding these adjustments, the correct factory overhead cost is:
Step 2
3.3 Complete the Production Cost Statement for the financial year.
Answer
The Production Cost Statement is structured as follows:
PRODUCTION COST STATEMENT
FOR THE YEAR ENDED 29 FEBRUARY 2024
Direct Material Cost:
- Direct Material Issued to Factory
Fabric issued = 59 500 m @ Average Cost
Average Cost Per Metre = Total Cost of Fabric / Total Fabric Available
= R 823 600 / 70 000 m = R 11.76 per metre
Total Cost = 59 500 m x R 11.76 = R 699 720
Prime Cost:
Prime Cost = Direct Material Cost + Direct Labour Cost
Direct Labour Cost (2023) = R 320 000*
Total Prime Cost = R 699 720 + R 320 000 = R 1 019 720
Factory Overhead Cost:
= R 223 500 (from earlier calculations)
Total Manufacturing Cost = Prime Cost + Factory Overhead
Total Manufacturing Cost = R 1 019 720 + R 223 500 = R 1 243 220
Work-in-Progress (Start of Year) = R 30 700
Work-in-Progress (End of Year) = R 660 200
Cost of Production = Total Manufacturing Cost + Opening Work-in-Progress - Closing Work-in-Progress
Cost of Production = R 1 243 220 + R 30 700 - R 660 200 = R 613 720
Note: Ensure to adjust the figures if the Direct Labour Cost changes.