MAC3701 Assignment 2 Semester 1 2023, Exams of Nursing

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MAC

ASSIGNMENT 2

SEMESTER 1

WELL ELABORATE ANSWERS

MAC3701 Assignment 2 Semester 1 2023

QUESTION 1 (100 Marks)

BevSoft Drinks Ltd (“BevSoft”), situated near Springs in the Gauteng Province, is

one of the leading energy drink and effervescent tablet manufacturers in the East

rand operating in a fiercely competitive market. The company operates two

divisions namely the Energy drink division (EDD) and the Effervescent tablet

division (ETD). BevSoft’s head office allocates corporate head office expenses at

its discretion. All other decisions are made by the respective divisional managers.

BevSoft has a 31 December financial year end and makes use of the absorption

costing system. BevSoft management strives to ensure that all ingredients and

manufacturing processes comply with food regulatory requirements. The

company’s budgeted required rate of return is 9% per annum.

1. ENERGY DRINK DIVISION (EDD) EDD manufactures two citrus-flavoured

energy drink products namely, Bolt which contains sugar, and Nerd, which is

sugar-free. Different to its competitors, Bolt is sold in a can containing 250

millilitres (ml) while a Nerd can contain 500 ml of energy drink. EDD values all

types of inventories using the first-in-first-out costing method. 1.1 Budgeted

information for the financial year ending 31 December 2022 The company was

hacked for ransom towards the end of the year resulting in some customer

information leaking. This was primarily due to their outdated firewall systems. The

EDD resolved to restore backup data, however, due to the old backup systems,

there was a loss of some backup data which included extracts of the budgetary

information. You have been provided with the following information from the

extracts the management accountant could find from the backups, with additional

information supplemented through divisional meeting minutes:

1.1.1. EDD’s maximum manufacturing capacity is based on the availability of the

prepared water. EDD buys the prepared water exclusively from Quench (Pty) Ltd

(“Quench”) at R2,00 per litre. A maximum of 5 million litres of prepared water

will be made available by Quench. Each litre of energy drink requires 900 ml of

water.

1.1.2 The company budgeted to produce 15 million cans and sell 12 million cans.

Both production and sales will be at a rate of two cans of Bolt for every one can of

Nerd.

1.2 Actual information for the year ending on 31 December 2022

1.2.1 For both Bolt and Nerd, the actual number of cans sold was 20% lower than

the budgeted number of cans sold per product. The company sold Bolt for R20 per

can, and Nerd at R25 per can as a result of an aggressive advertising campaign,

which pitched both products as premium products. Both products were produced

and sold in the same budgeted ratio.

1.2.2 Quench is investigating possible contamination at one of its reservoirs. The

supplier used an alternative source and short-supplied EDD on water, resulting in

both Bolt and Nerd, being produced at 20% less than the budgeted production. The

supplier is still investigating if any of the water supplied to BevSoft could have

been affected. BevSoft management has decided not to test its water but rather wait

for the results of the supplier.

1.2.3 EDD had no opening inventory of any kind

1.2.4 Due to labour strikes and resignations as a result of wage rate disputes, the

company was forced to hire new labourers. These new labourers had to learn the

production process and received limited supervision on the use of machinery.

These new labourers took 12 direct labour clock minutes to manufacture one litre

of Bolt and 9 direct labour clock minutes to manufacture one litre of Nerd. They

were paid R22,00 per clock hour and the actual idle time was 5%. The company

has aggressively managed labour costs by paying below the minimum wages and

by employing some undocumented foreign workers. Page 4 of 8 MAC

Assessment 02/S1/2023 [TURN OVER] QUESTION 1 (continued)

1.2.5 One of the key suppliers for caffeine was placed under liquidation, as a

result, the procurement department had to source caffeine from an award-winning

supplier at R186 per 100 g. However, only 70 mg of caffeine was used per 250 ml.

1.2.6 The water, sugar, artificial sweetener, citrus flavouring and taurine were

purchased at the budgeted price and the standard quantity was used.

1.2.7 The VMO recovery rate per machine hour was R13 per hour and it took 15

machine minutes to manufacture one litre of Nerd energy drink while Bolt was

manufactured at the standard machine time.

1.2.8 The actual annual FMO for Nerd and Bolt were R17,61 million and R16,

million respectively.

1.2.9 Other budgeted fixed costs were R55 million.

1.2.10 Variable selling and distribution costs were R1,20 per unit sold.

1.3 EDD’s 2023 FINANCIAL YEAR BUDGET

1.3.1 Some of the budgeted information for EDD’s 2023 financial year is: Details

Standard cost Bolt energy drink per can R Nerd energy drink per can R Selling

price 18,00 25,00 Prime costs 6,75 17,90 Variable selling and distribution costs

1,20 1,20 Fixed manufacturing overheads 2,50 4,00 Variable manufacturing

overheads 0,65 1,

1.3.2 The labour disputes are expected to have an impact on the available labour

capacity. As a result, EDD management expects to have only 660 000 direct labour

clock hours available during 2023. The direct labour clock time per product is

expected to be the same as the actual direct labour clock time per product for the

2022 financial year.

1.3.3 EDD has budgeted to produce and sell 12 million cans of energy drinks of

which 70% will be Bolt and the rest Nerd as a result of labour and material input

issues.

1.3.4 The water supply issues are also expected to persist in 2023. Quench

informed EDD that they can only supply 80% of the 2022 budgeted capacity of

water made available.

EFFERVESCENT TABLET DIVISION (ETD) This division operates a process

costing system in the manufacturing of the citrus performance effervescent tablets

(Bazooka). ETD values all types of inventories using the weighted average costing

method. The ETD management team receives a performance-related bonus if their

division achieves a return on investment (ROI) of 12% or above for the particular

financial year. The head office is considering incorporating other non-financial

performance measures. The ETD manufacturing process begins with mixing the

direct raw materials (Vitamins, Citric Acid, Sodium Bicarbonate, Flavourants and

Artificial sweeteners). The raw materials are mixed and undergo granulation to be

compressed into tablets. The tablets are packaged into plastic tubes of 200 g each,

which represents one unit of Bazooka. These units are packed in boxes for

distribution to various retailers. All the direct raw materials required to

manufacture Bazooka are added at the beginning of the manufacturing process.

Direct labour and manufacturing overheads are incurred evenly throughout the

manufacturing processes. One kg of the direct raw materials yields one kg of

Bazooka. Normal losses in the form of broken and rejected tablets amount to 5% of

controllable profit 1 025 000 Add: Head office allocated costs 250 000Therefore,

revised controllable profit R1 275 000 

Given 

(R12 000 000

less R4 500

000 ) = R7 500 000 x 12%= R900 000 R1 800 000 ÷ 48 months x 6 months =

R225 000

Controllable investment Details R Controllable assets 13 575 000 

Less: Controllable liabilities 6 300 000Therefore, Controllable investments R

R12 000 000

+ R1 800 000

(new granulator) – (R225 000 

depreciation = R13 575 000 R4 500 000+ R1 800 000(granulator finance) =

R6 300 000

For each question below, remember to: • Clearly show all your calculations in

detail; • Where necessary, indicate irrelevant amounts/adjustments with an R0 (nil-

value); • Except where otherwise stated, round all the final Rand-amount workings

to two decimals; and • Ignore time-value-of-money and all taxation implications.

QUESTIONS (a) TO (e) RELATE TO EDD’s 2022 FINANCIAL YEAR

(a) Calculate EDD’s budgeted break-even sales units per product type for the 2022

financial year. Ignore the implications, if any, of opening- and closing inventory.

(b) Prepare EDD’s actual statement of profit or loss (income statement) for the

year ended 31 December 2022 and note the following: • The income statement

must contain a column for each product type and a total column.

(c) Briefly identify and discuss three social and ethical concerns that EDD faced

during the 2022 financial year.

(d) Besides the social and ethical concerns identified in question (c), briefly

identify and discuss five additional business risks that the EDD faced during the

2022 financial year.

(e) For answering question (e) only, assume the following: • a standard costing

system is in place. • the implications, if any, of opening and closing inventory

should be ignored. • Bolt: Standard gross profit (GP) of R4 and actual GP of R3,

per unit. • Bolt: Standard contribution of R3,80 and actual contribution of R3,

per unit. Calculate the following variances for the year ended 31 December 2022:

(i) Sales price variance for Bolt only.

(ii) Sales volume variance for Bolt only.

(iii) Caffeine direct material usage variance in grams for Nerd only.

(iv) Direct labour efficiency variance in work hours for both products and in total.

(v) Total variable manufacturing overhead efficiency variance. (2) (2) (3) (5) (3)

QUESTION (f) RELATE TO EDD’s 2023 FINANCIAL YEAR

(f) Calculate the EDD’s budgeted optimum manufacturing mix per product for the

financial year 2023. • the implications, if any, of opening and closing inventory

should be ignored.

(g) TO (j) RELATE TO THE ETD

(g) (i) Comment on whether or not the shortcut method is applicable in calculating

the actual quantity statement for December 2022.

(ii) Prepare ETD’s actual quantity statement for December 2022 Where applicable,

round your workings to the nearest unit of measure.

(h) Based on your answer in

(g), calculate the ETD’s equivalent cost per unit of measure for December 2022.

(i) Draft a memorandum to the Chief Executive Officer (CEO) (2 format marks)

wherein you critically evaluate the management accountant’s calculation and

comments. (Review workings for errors and/ or omissions, and where applicable,

provide correct workings.)

(j) Briefly describe three non-financial measures that can be used to evaluate

ETD’s performance in terms of the efficiency of their manufacturing process. (3)

Total question one [100]

To calculate the operating profit of the Energy Drink Division (EDD) of BevSoft

Drinks Ltd, the following steps need to be taken:

Calculate the total sales revenue for Bolt and Nerd based on the actual number of

cans sold and the selling price of each product:

Actual number of cans sold per product = 12 million x 80% = 9.6 million cans

Sales revenue for Bolt = 9.6 million cans x R20 per can = R192 million

Sales revenue for Nerd = 4.8 million cans x R25 per can = R120 million

Total sales revenue = R192 million + R120 million = R312 million

Variable manufacturing overhead cost = (12 minutes / 60 minutes) x R12 per

variable manufacturing overhead recovery rate per machine hour x 9,6 million cans

/ 2 = R2,30 million

Total cost of goods sold for Nerd = R100,95 million

Total cost of goods sold = R102,01 million + R100,95 million = R