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An assignment for MAC3701 course in Semester 1 of 2023. information about BevSoft Drinks Ltd, a leading energy drink and effervescent tablet manufacturer in the East rand. budgeted information for the financial year ending 31 December 2022 for the Energy Drink Division (EDD) and the Effervescent Tablet Division (ETD). The document also provides actual information for the month of December 2022 and the year ended 31 December 2022 for ETD. details about the manufacturing process, direct raw materials, direct labour, manufacturing overheads, and budgeted and actual information for EDD and ETD.
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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.
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 This was primarily due to their outdated firewall systems.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 000Therefore,
revised controllable profit R1 275 000
Given
less R4 500
000 ) = R7 500 000 x 12%= R900 000 R1 800 000 ÷ 48 months x 6 months =
Controllable investment Details R Controllable assets 13 575 000
Less: Controllable liabilities 6 300 000Therefore, Controllable investments R
(new granulator) – (R225 000
depreciation = R13 575 000 R4 500 000+ R1 800 000(granulator finance) =
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