Exam (elaborations)
MAC3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2023 (786949) - DUE 11 September 2023
- Institution
- University Of South Africa
MAC3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2023 () - DUE 11 September 2023
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MAC3701Assignment 2
(COMPLETE
ANSWERS)
Semester 2 2023
(786949) - DUE 11
September 2023
, MAC3701/Assignment02/2/2018
QUESTION 1 100 marks
TZANEEN TRAMPOLINES (PTY) LTD
Tzaneen Trampolines (Pty) Ltd (TT) is a recently established family-owned company in Limpopo.
TT manufactures and sells two different types of square trampolines, namely Humpty-trampolines (HT)
and Dumpty-trampolines (DT). Trampolining is becoming increasingly popular all around the country, as
it serves as a source of exercise and fun at home. TT makes use of an absorption costing system and
all its inventory items are valued using the first-in-first-out (FIFO) method. TT’s year end falls on 31 July
of each financial year.
1. TT’S STANDARD AND BUDGETED INFORMATION FOR THE 2018 FINANCIAL YEAR
1.1 Inventory and manufacturing
The company had no budgeted opening inventory and no budgeted closing inventory for all types of
inventories for the 2018 financial year. To minimise possible wastage during each financial year, the
company budgets to manufacture the trampolines in direct proportion to its standard sales mix. The
budgeted manufacturing levels for the 2018 financial year were equal to the company’s normal
manufacturing capacity.
1.2 Sales
TT budgeted to sell 24 000 trampolines in the standard sales mix of 1 : 3 for HT : DT. The standard selling
price of HT and DT was set at R8 000 and R3 000, respectively.
1.3 Variable costs
Trampolines consist mainly of four basic components, that is, the tubing, steel springs, jumping mats and
safety pads made of foam. The tubing used to make the frame and the trampoline’s lower support structure
is made of galvanised steel and is bought at standardised lengths and widths from suppliers. Currently,
TT buys all its springs from Springs Galore CC, a renowned springs manufacturing specialist. These
springs are manufactured according to TT’s specifications. The jumping mats are made of woven fibres.
For safety purposes, foam safety pads are used to cover the springs of the trampolines.
TT employs factory workers (direct labour) who operates various manufacturing machines. The standard
is to allow 10% idle time.
Standard variable costs requirements for one (1) HT and one (1) DT:
Requirements per unit
HT DT
Tubing (R150 per metre) 24 metres 6 metres
Steel springs (R5 per spring) 110 springs 80 springs
2
Jumping mat fabric (R50 per m2) 4m 3 m2
Safety pads (R1 per safety pad) 110 safety pads 80 safety pads
Direct labour (R100 per direct labour working hour) 8 working hours 4 working hours
Variable manufacturing overheads (R10 per machine hour) 6,5 hours 5,5 hours
Variable selling and administrative costs R50 R50
3
, MAC3701/Assignment02/2/2018
QUESTION 1 (continued)
1.4 Fixed costs
TT uses top-of-the-range machines that bend and punch holes in the tubes. These machines cut the
jumping mat fabric into the required sizes and sew D-rings into the fabric to hold the mat to the frames. As
quality control is extremely important to TT, all the trampolines manufactured are inspected regularly to
ensure that they meet established guidelines. Budgeted fixed manufacturing overheads of R5 000 000 for
the 2018 financial year were allocated to products, based on the budgeted direct labour working hours.
The total annual normal manufacturing capacity of the factory workers was equal to the budgeted annual
working hours.
The company’s budgeted annual fixed selling and administrative expenses for the 2018 financial year were
R120 000 and they were allocated to products, based on the budgeted number of units sold.
1.5 Insurance
The company has taken out third-party insurance with SkyInsurers for possible litigation that might arise
from improper and/or unsafe use of the trampolines by consumers. The insurance premiums have not yet
been determined with certainty for the 2018 financial year. Indication are that, the fixed component of the
premium is expected to be R25 000 per month, and it is allocated equally to the products. The variable
component is based on the number of budgeted sales units and the probabilities of insurance cost per
sales unit. For HT, there is a 10% probability of R30 per unit sold, a 20% probability of R15 per unit sold,
a 25% probability of R40 per unit sold, and a 45% probability of R20 per unit sold. For DT, there is a 15%
probability of R20 per unit sold, a 25% probability of R40 per unit sold, a 40% probability of R30 per unit
sold, and a 20% probability of R10 per unit sold.
1.6 Administrative staff costs
Fixed administrative staff costs are budgeted for at R1 200 000 for the financial year, of which one third
(⅓) is allocated to HT and the remainder to DT.
2. TT’s ACTUAL RESULTS AND INFORMATION FOR THE 2018 FINANCIAL YEAR
2.1 Manufacturing and sales
The actual sales and the actual manufacturing levels were equal. 5 000 HTs were sold at R7 700 per unit
and 20 000 DTs were sold at R3 500 per unit. There was no actual opening inventory of any type at the
beginning of the 2018 financial year.
2.2 Variable costs and manufacturing information
HT DT
R R
Total tubing purchased @ R152,50 per metre 18 452 500 17 690 000
Steel springs (110 springs per HT; 80 springs per DT) 2 750 000 8 000 000
Jumping mat fabric (R50 per m2) 1 025 000 2 900 000
Safety pads (R1,05 per safety pad) 577 500 1 680 000
Direct labour (R80 per direct labour clock hour) (see note below) 4 000 000 8 000 000
Variable manufacturing overheads (R9,95 per machine hour) 318 400 1 114 400
Variable selling and administrative costs 250 000 1 000 000
4
, MAC3701/Assignment02/2/2018
QUESTION 1 (continued)
Note: The actual idle time percentage was double the percentage of the allowed (standard) idle time.
2.3 Fixed costs
The actual fixed manufacturing overheads were R4 800 000. The actual fixed selling and administrative
costs were R130 000.
3. ACTIVITY-BASED COSTING (ABC) SYSTEM INVESTIGATION
The budgeted fixed manufacturing overheads (refer to section 1.4 above) was traditionally allocated to the
products based on the direct labour working hours (refer section to 1.3 above). TT’s chief financial
officer (CFO) has recently taken a cost accounting refresher course, where she learned more about the
activity-based costing (ABC) system as an alternative to the traditional costing system. She would like to
establish the effect of the ABC system on TT’s product costs. To undertake this exercise, the management
accountant established the following information:
3.1 Machine hours for each type of trampoline will remain as budgeted for.
3.2 Total budgeted cutting time is 65 000 hours, of which 0,5% relates to the cutting plant’s warm-up
time while the related cool-off time is 0,8%. 40% of the productive cutting time relates to HT, while
DT consumes the other 60% of the productive cutting time.
3.3 Every second unit of HT is inspected for quality control, while every tenth unit of DT is inspected.
3.4 For each product type, the set-up of machines occurs after every 500 units that are manufactured.
3.5 The budgeted manufacturing units are in line with the standard sales mix while the budgeted fixed
manufacturing overheads have been allocated to identified activities as follows:
Activities Cost driver R
Bending and shaping of the tubes Machine hours 2 220 000
Cutting of the jumping mat fabric Cutting time percentage 200 000
Quality inspection costs Number of inspections 1 350 000
Machine set-up costs Number of set-ups 1 230 000
4. ACQUISITION OF SPRINGS GALORE CC (SG)
As part of its growth strategy, TT acquired the entire shareholding of SG on 1 August 2018. SG is a sole
manufacturer of various steel springs of different shapes and sizes. During 2017, one of SG’s managers
(Ms. Lerato Ndlovu) was awarded the 2017 TopNotch Quality Manager award as voted by clients. TT is
expected to leverage off Ms Ndlovu’s excellent customer-care and leadership qualities. The leadership
style of both companies is the same. All the employees of SG have been retained and integrated into the
group. During the integration process, an unforeseen IT-related glitch affected the August 2018 payroll run
of the employees migrated from SG. This IT glitch resulted in the incorrect calculation and short payment
of their August 2018 salaries. These employees indicate their intention to engage in a strike action until
the matter is resolved. In the past, the staff turnover of SG has been minimal.
5
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