FACULTY OF COMMERCE, MANAGEMENT AND LAW: 2024 AAM3691 Assignment Questions

FACULTY OF COMMERCE, MANAGEMENT AND LAW

OLD CURRICULUM MODULES

2024 AAM3691 Assignment Questions

Assignment 1

Question 1 (25 marks)

Rocky Crest Enterprises (RCE) produces a single product, which they sell for N$15.00 per unit. The company has a capacity to produce 120,000 units per year and is currently operating at full production capacity.

The following costs are associated with the company’s operations per year:

Cost Item	Amount (N$)
Direct materials	510,000
Direct labour	370,000
Variable overheads	140,000
Fixed overheads	620,000

The company has observed an increase in demand and estimates that they will need to produce an additional 30,000 units per year to meet this demand. To achieve this, the company proposes to adjust its labour shift working arrangements. This would involve paying a 10% premium on the current labour rate to direct workers, and an expected 5% increase in hourly production output. The quantity of direct materials required per unit of production will remain the same, but the company will receive a 2% discount on all direct materials if the annual quantities purchased increase by more than 20%. Fixed overheads are projected to rise by N$70,000 per year, while variable overheads per unit of output will remain unchanged. The additional 30,000 units per year will not affect the selling price.

Required	Subtotal	Total
1.1 Classifying costs by element, prepare an annual profit statement of the current production level (i.e., at full capacity)	5	5
1.2 Classifying costs by element, prepare an annual profit statement for the additional 30,000 units. Incorporate the changes (+ or -) to (1.1) above as a result of producing and selling the 30,000 additional units by employing the revised shift working (show clear workings for each changed calculation).	10	15
1.3 Classifying costs by element, prepare an annual profit statement of the new increased capacity (i.e., 150,000 units) after incorporating all the changes as noted above.	5	20
1.4 Using a graph, show the total expenditure on direct materials for output ranging from 0 to 150,000 units per annum.	5	25
Total	25

Question 2 (14 marks)

Nkurenkuru Plumbing CC uses both plastic and steel pipes when building water and sewage systems in residential homes as well as commercial buildings. The business orders 3,000 plastic pipes from its main supplier, Eenhana Engineering Limited. Nkurenkuru Plumbing CC periodically orders a quantity that reduces the holding and carrying costs to a minimum. The pipes cost N$150 per unit (having a length of 10 metres) when bought in quantities agreed with the main supplier. The carrying cost is estimated to be 2% of the unit cost of a pipe, while it costs N$180 to order and process the delivery. It takes a maximum of 45 days to receive the pipes from the date the order is made, and the maximum pipes used is a monthly average based on the annual requirement. Assume that there are 365 days in a year and 30 days in a month.

REQUIRED	Subtotal	Total
2.1 How many pipes does Nkurenkuru Plumbing CC need to satisfy its customer requirement annually?	6	6
2.2 What is the frequency of making orders in days based on the EOQ?	2	8
2.3 Based on the above information, calculate the re-order level.	3	11
2.4 What are 3 differences between a bin card and a stock ledger?	3	14
Total	14

Question 3 (15 marks)

In 2022, following the post-pandemic closure of her employer’s business, which was a family-owned freight company in Swakopmund, Angela decided to put her skills in logistics and her love for cooking to work by opening a small business in the form of a food truck.

Fork’ n Pork is operated from an old school bus parked near the beach and offers customers breathtaking views as they enjoy their meals.

Angela handles all the administration and logistics for the business, for which she pays herself a monthly salary of N$16,000. She employs three additional workers: a cook and two assistants who assemble and serve the meals. These employees are paid using a system that combines the meals served with a minimum living wage of N$1,000 per week.

The units of output recorded for the week ending 13 May 2023:

	Monday	Tuesday	Wednesday	Thursday	Friday	Saturday
Number of meals	300	295	250	150	280	140
Number of customers	120	125	110	95	130	80

Additionally, the cook is paid N$1.20 per meal, and the servers split the number of customers in half and are paid at a rate of N$1.80 each.

The pension fund contribution is 5% of basic pay for each employee, and the employer matches the employee’s contribution.

Assume each month consists of four weeks.

REQUIRED	Subtotal	Total
3.1 Name the two types of remuneration systems combined in the scenario above and explain why the company might opt for such a system.	2	2
3.2 Calculate the taxable income for each of the employees for the week ended 13 May 2023.	12	14
3.3 Distinguish the labor costs at Fork’ n Pork into direct and indirect components.	1	1
Total	15

Question 4 (28 marks)

Omakunde Tannery operates a factory whose expected production overhead costs at three different levels of activity in a period are as follows:

Output (Units)	16,000	20,000	24,000
Variable costs (N$)	14,000	17,500	21,000
Semi-variable costs (N$)	12,200	13,000	13,800
Fixed costs (N$)	31,000	31,000	31,000

The total production overhead costs of the factory for a period can be calculated using a cost function equation as follows:

y = a + bx

Where:

y is the total production overhead cost (N$)
a is the total fixed production overhead cost (N$)
b is the variable production overhead cost (N$ per unit of output)
x is the number of units of output

Required	Subtotal	Total
4.1 Using the data above, calculate the values of a and b.	10	10
4.2 Estimate the total production overhead costs for the factory in a period if 18,000 units are manufactured.	3	13
4.3 Calculate the predetermined production overhead absorption rate, per unit of output for the factory, based on planned production of 20,000 units in a period.	3	16
4.4 Using the absorption rate established in (2.3) above, calculate the over/under absorbed overhead if actual output is 21,500 units and costs are as expected.	6	22
4.5 Contrast the way in which production overhead costs are attributed to products using activity-based costing (ABC) with the more traditional full absorption costing approach.	6	28
Total	28

Total Assignment 1: 82 marks

Assignment 2

Question 1 (18 marks)

ABC Company produces and sells a range of products. Activity-based costing is applied to control and apportion production overhead costs.

Information regarding production activities and associated budgeted costs for the next year is as follows:

Activity	Cost Driver	Cost Driver Volume	Overhead Expenditure (N$)
Materials handling	Weight of materials	240,000 kg	76,800
Machining	Items handled	112,000 items	197,120
Assembly	Direct labour hours	90,000 hours	94,500
Product testing	Units tested	74,000 units	153,920

One of the products that the company produces, Product Axe, has the following estimates for the year:

Weight of materials	7,800 kg
Items handled	3,100 items
Direct labour hours	2,700 hours
Units tested	4,400 units
Units produced	11,000 units

Required	Subtotal	Total
1.1 Determine the predetermined overhead rate, assuming the overheads are absorbed based on direct labour hours.	4	4
1.2 Determine the budgeted cost drivers for each activity cost pool.	4	8
1.3 Calculate the budgeted production overhead cost per unit of Axe (to 2 decimal places of N$).	10	18
Total	18

Question 2 (26 marks)

Monica Enterprises is preparing its overhead budgets for an upcoming period. The company has three production departments: A, B, and C, and two service departments: X and Y. The following figures have been produced:

Department	A	B	C	X	Y
Overhead cost (N$)	40,000	42,000	45,000	40,000	42,000
Machine hours	15,000	12,000	13,000

Overhead is absorbed on a machine hour basis.

It has been estimated that service department usage is as follows:

	A	B	C	X	Y
Department X	20%	30%	10%		40%
Department Y	30%	30%	20%	20%

Required	Subtotal	Total
2.1 Define:
(i) Overhead allocation	2	2
(ii) Overhead apportionment	2	4
2.2 Prepare a schedule of the overhead costs to be charged to departments A, B and C, using the repeated distribution method to apportion the service department costs to the production departments (work to the nearest N$).	10	14
2.3 Calculate the overhead absorption rates for the period for departments A, B and C (work to the nearest N$).	6	20
2.4 State why hourly rates are generally accepted to be the most appropriate method of overhead absorption, and comment upon other methods of absorption that may be used.	6	26
Total	26

Question 3 (17 marks)

Papercut CC is a small manufacturing company that is attempting to value a raw material used to produce one of its popular products. The company is buying more and more stock of the material to fulfill the growing demand, and measuring the value of that inventory with greater accuracy has become more important.

Date	Description	Quantity (kg)	Unit Price (N$/kg)
1 June 2023	Balance	1,000	5.50
5 June 2023	Receipts	1,500	6.30
7 June 2023	Receipts	2,000	6.70
13 June 2023	Issued	2,300
19 June 2023	Receipts	2,900	5.80
26 June 2023	Issued	3,850

The Production Manager is considering a review of the inventory control policy, and he requests your advice.

Here is the table you requested:

REQUIRED:	MARKS
Subtotal	Total
3.1 What is the difference between the periodic and perpetual inventory system? Why would you advise the company to pursue a perpetual inventory system?	2
3.2 Compile a stores ledger card and calculate the value of inventory for the month of June using the First-in-first-out (FIFO) method.	6
3.3 Compile a stores ledger card and calculate the value of inventory for the month of June using the Weighted Average method.	8
3.4 Why is inventory valuation important and why does the choice of method matter?	1
Total	17

Question 4 (10 marks)

Saima Petrus, a University of Namibia alumnus, is an experienced cost accountant. She recently took over the role of cost accountant at Namib Breweries Ltd, a company that produces beverages. The previous cost accountant left the company abruptly without notice, leaving the accounting records in disarray. Saima requires the ending inventory balances for the fourth-quarter financial report.

The following information is available:

Item	Amount (N$)
Direct materials purchased	480,000
Work-in-progress (1 Oct 2023)	140,000
Direct materials (1 Oct 2023)	50,000
Finished goods (1 Oct 2023)	640,000
Conversion costs	1,320,000
Total manufacturing costs added during the period	1,680,000
Cost of goods manufactured	4 times direct materials used
Gross margin	25%
Revenues	2,075,000

REQUIRED:	MARKS
Subtotal	Total
4.1 Calculate Direct materials (31 December 2023)	4
4.2 Calculate Work-in-progress (31 December 2023)	3
4.3 Calculate Finished goods inventory (31 December 2023)	3
Total	10

Total assignment 2: 71 marks

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