problem1) SHORT problemS

1.1 Various Users of financial information need the information to make certain decisions. The table below contains internal and external users of financial data as well as their various uses of the data. However, the ‘users’ and ‘use’ columns are mixed up. You are required to prepare the correct number from the ‘users’ column with the correct letter from the ‘use’ column. E.g. if you feel ‘Owners’ is correctly matched with point ‘a’, then your answer would be 1.1.1–a) Follow this process for all eight of the users listed.

Users                                                                                           Use

1.1.1Owners              a. Determine if the business can repay loans and interest.                        
1.1.2 Employees        b. Competitor intelligence, to maintain competitive edge.
1.1.3 Customers        c. Determine if business can provide products over a long period of time.
1.1.4 Competitors      d. Determine if business can pay for goods purchased on credit
1.1.5 Lenders             e. Determine if the employer is able to provide stable employment and remuneration
1.1.6 Government      f. Determine if a business would be a good investment and to assess risk and return of an
                                  investment in business.
1.1.7 Suppliers                      g. Determine how much tax and levies should be paid.
1.1.8 Investment analysts     h. Determine profitability and financial viability.

1.2 Name any three(3) production overheads which you would expect to find in a manufacturing organisation.

1.3 In business, owners and managers will often have to make ‘quick’ decisions under special ‘once off’ situations. Generally, these decisions happen within one year/ over the short term. Identify six (6) quick/short-term decisions which the logic of relevant costs can be applied to.

1.4 The manager of ‘Maple Furn Manufacturers’ has identified various items that are preventing his organisation from extending its sales, production and profits.

A management accountant friend has told him that those items would be regarded as limiting factors. Identify any three potential limiting factors and for each factor briefly discuss how they would arise and/or how you would manage or recommend reducing their effects on the business.

1.5 You are provided with the following costs which might be incurred in a service, trading or manufacturing entity. Indicate whether the cost involved would be variable, fixed or semi-variable (mixed). (Mark your chosen cost classification by marking an ‘X’ under the relevant column.)

Cost Behavior

Cost                                                                                                              Variable           Fixed           Mixed
1.5.1 Leather used to manufacture handbags.
1.5.2 Cleaning materials used in a factory.
1.5.3 Wages of assembly line workers paid per hour.
1.5.4 Salary of the factory supervisor.
1.5.5 Depreciation on factory plant and equipment. (straight line depreciation).
1.5.6 Electrical costs of running machinery.
1.5.7 Rental of the factory warehouse.
1.5.8 Rates and taxes on factory building.
1.5.9 Manufacturing equipment leased at a flat rate per month plus an additional cost based on the number of hours it is operated each month.
1.5.10 Telephone costs (Including linerental).
1.5.11 X-Ray film used in a medical centre.
1.5.12 Buns used to make burgers at a fast food outlet.
1.5.13 Shipping costs of a manufacturer where no monthly contract exists i.e. the manufacturer is charged per product shipped.
1.5.14 Advertising on a billboard where a monthly contract exists.
1.5.15 Commission paid to sales personnel.
1.5.16 Insurance on the office building

problem2) COST ANALYSIS

Builders Ltd is an organisation which manufactures building equipment for the building industry in and around the Sandton area in Johannesburg. Builders Ltd has the following production overhead budget:

Overhead Cost                                            R
Site foreman salary                             250 000
Indirect labour (workers)                     400 000
Miscellaneous machinery costs            1500 000
Electricity                                             585 000
Insurance                                               50 000
Rent                                                      120 000
Depreciation on machinery                     150 000
R                                                          3055 000

The company operates five cost centers: Bricks, Cementing, Window Frames, Doors Frames, and Canteen.
The following details have been identified for each cost center.

                                 Bricks       Cementing     Window Frames      Door Frames    Canteen        Total
Floor space(m²)     4500m²       4500m²               1000m²               1000m²      1000m²      12000m²
Kilowatt hours        250000         200000               150000                100000      50000          750000
Capital cost of 
machines (R000)    5500000       5500000            2500000               2500000     100000       16100000
Indirect labourers        25                25                       10                      10               5                   75
Misc. Machinery                                                                                                                      
Costs (allocated)    R500000     R500000             R300000               R150000        R50000       R1 500000
Site foreman
(allocated)              R75 000        R50 000              R50 000               R50 000         R25 000      R250 000

Additional information:

• Use miscellaneous machinery costs to apportion depreciation.

• Use the capital cost of machines to apportion insurance.

• Use floor space to apportion rent.

• Use kilowatt hours to apportion electricity.

• Use number of indirect labourers, to apportion indirect labour.

Required:

Allocate and apportion the over heads to the five cost centers using the information provided.

(Suggested headings to help you lay out your answer have been provided below.

Round all your figures to the nearest WHOLE RAND.)

Overhead cost         Total           Bricks     Cementing       WindowFrames   DoorFrames   Canteen
Site Foreman
Salary                   R250 000        R?               R?                    R?                           R?               R?
....                             ...               ...                ...                      ...                           ...                ...