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.
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 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
Costs (allocated) R500000 R500000 R300000 R150000 R50000 R1 500000
(allocated) R75 000 R50 000 R50 000 R50 000 R25 000 R250 000
• 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.
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
Salary R250 000 R? R? R? R? R?
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