ACCOUNTING

GRADE 12 REVISION PROGRAMME

TOPIC(S): PAPER TWO TOPICS

DATE: 17 October 2021

 INTERACTIVE SESSION
2

Make sure you have your pen, paper and

calculator. This is an interactive class, kindly
participate to get more clarity.

Please type your question in the chat box or if you

are in class, ask your educator to type the question
on your behalf.

Your questions will be addressed as soon as

we receive them.
 OBJECTIVES OF THE LESSON
Paper two topics
• Cost Accounting

• Budgeting

• Examination tips and easy marks

 FORMAT OF PRODUCTION COST STATEMENT

PRODUCTION COST STATEMENT

Note R ADD all amounts
EXCEPT for WIP
Direct material cost 1 xxx (Work- in- Process)
Direct labour costs 2 xxx
Prime costs xxx
Factory overhead cost 3 xxx WIP
Total manufacturing cost xxx
Work-in-process at the beginning of the xxx
year
xxx
Work-in-process at the end of the year (xxx)
Cost of production of finished goods 4 xxx
PRODUCTION COST STATEMENT NOTES
1. Direct material cost R
Balance at the beginning of the year xxx Direct material
Net purchases xxx PLUS
Carriage on purchases xxx Direct labour
=
Custom duties xxx
Prime Cost
xxx
Less: Balance at the end of the year (xxx)
Direct material cost xxx
2. Direct labour cost R
Factory wages xxx
Pension fund contributions xxx
Medical aid contributions xxx
UIF contributions xxx
Direct labour cost xxx
PRODUCTION COST STATEMENT NOTES
3. Factory overhead costs R
Indirect material xxx
Prime Cost
Indirect labour xxx PLUS
Factory Overhead
Depreciation: Machinery and equipment xxx =
Total Manufacturing
Maintenance: Machinery and equipment xxx Cost

Rent for factory buildings xxx

Factory electricity and water xxx
Factory overhead cost xxx
Cost of production of finished goods

Cost of production of finished goods

WIP Account can

be used to
Equals calculate
Total manufacturing costs xxx
Work-in-process at the beginning of the year xxx
xxx
Work-in-process at the end of the year (xxx)
Cost of production of finished goods xxx
Cost of production of finished goods
WORK-IN- PROCESS STOCK
Balance b/d XXX Finished goods stock XXX
OR
Total cost of production
of finished goods DMC + DLC + FOC
Direct material cost XXX Balance c/d XXX =
Total
(DMC)
manufacturing
Direct labour cost XXX cost
(DLC)
Factory overhead cost XXX
(FOC)
XXXX XXXX

Balance b/d XXX

Cost of production of finished goods
Finished Good Stock Account
Balance b/d XXX Cost of sales XXX
Finished goods
Work-in-process XXX Balance c/d XXX
stock OR WIP
determine cost of
XXXX XXXX production of
finished goods
Balance b/d XXX
Depend on
information
provided
Work-in-process provided above is the
“cost of production of finished goods”
 Cost Accounting – 2020 NSC Exam
2020 NSC NOV
QUESTION 2: COST ACCOUNTING (MANUFACTURING)

2.1 PERFECT FIT MANUFACTURERS

The business produces formal shirts. The financial year ended 28
February 2021.
REQUIRED:
2.1.1 Prepare the Production Cost Statement. (14)
2.1.2 Calculate:
o Gross profit earned on sale of shirts (5)
o Mark-up % achieved on shirts (2)
 Production Cost Statement
B.The bookkeeper calculated the costs
below. Some errors were made.
Direct Material cost :
Direct material cost R1 575 000
Direct material cost R1 575 000
Selling and distribution cost R385 000
Carriage R75 000
Administration cost R256 400
1 650 000
Direct labour cost ?
Factory overhead cost R518 800

C . Errors and omissions:

Payment to Quick Deliveries, R75 000
for carriage on raw materials, was
incorrectly allocated to selling and
distribution cost.
 Production Cost Statement
B.The bookkeeper calculated the costs
PRODUCTION COST STATEMENT
below. Some errors were made.
Note R
Direct material cost R1 575 000 Direct material cost 1 1 650 000
Direct labour cost 2 ??
Selling and distribution cost R385 000
Prime cost 2 550 000
Administration cost R256 400
Direct labour cost ? Prime cost is a given figure – check the
answer book
Factory overhead cost R518 800

DLC
=
PRODUCTION COST STATEMENT
Prime Cost
LESS Note R
DMC Direct material cost 1 1 650 000
Direct labour cost 2 900 000
Prime cost 2 550 000
 Production Cost Statement
Information B
PRODUCTION COST STATEMENT
Direct labour cost ? R
Factory overhead cost R518 800 Direct material cost 1 650 000
Direct labour cost 900 000
Prime costs 2 550 000
C.Errors and omissions:
Factory Overhead Cost
The entire insurance amount of R25 518 800 + 16 800**
200 was transferred to the
Administration Cost Account. Two-
thirds (2/3) of this expense should be
allocated to the factory.

Insurance - (Factory ): Insurance - (Admin ):

25 200 x 2/3 = 16 800** 25 200 x 1/3 = 8 400
 Production Cost Statement
C.Errors and omissions:
Correct allocation –Water and lights
The Factory Overhead Cost Account
Factory Admin Selling
included an amount of R117 600 for
5 4 1
water and electricity. The bookkeeper
?
had incorrectly allocated this expense to
factory, administration, and selling and
117 600 X 5/6 = 98 000
distribution in the ratio 6: 3: 1. The
correct ratio is 5: 4: 1.

Incorrect allocation –Water and lights

Factory Admin Selling
6 3 1
R117 600
 Production Cost Statement
C.Errors and omissions: PRODUCTION COST STATEMENT
The Factory Overhead Cost Account R
Direct material cost 1 650 000
included an amount of R117 600 for
Direct labour cost 900 000
water and electricity. The bookkeeper Prime cost 2 550 000
had incorrectly allocated this expense to Factory Overhead Cost
factory, administration, and selling and 518 800 + 16 800 + 98 000 - 516 000
117 600
distribution in the ratio 6: 3: 1. The
correct ratio is 5: 4: 1
518 800 + 16 800 - 19 600 = 516 000

117 600 X 5/6 = 98 000

Correct/incorrect OR
Unknown /Known
 Production Cost Statement
A. Stock on hand
28 February 2021 1 March 2020
Work- in- progress ? R230 000
Finished goods 400 shirts , valued 900 shirts at R380 =
using FIFO method R342 000

PRODUCTION COST STATEMENT

R
Direct material cost 1 650 000
Direct labour cost 900 000
Prime cost 2 550 000
Factory Overhead Cost 516 000
Work in process -1 March 2020 230 000
 Production Cost Statement
PRODUCTION COST STATEMENT
E.Errors and omissions:
R
Production and sales for the
Direct material costs 1 650 000
year:
Direct labour costs 900 000
Prime costs 2 550 000 7 600 shirts were produced at a
Factory Overhead Cost unit cost of R420 each.
518 800 + 16 800**+ 98 000 - 117 600 516 000 8 100 shirts were sold for
Total Manufacturing Cost 3 066 000 R4 860 000.
Work in progress at beg 230 000
3 296 000
Work in progress at end (104 000)
Total cost of production (7 600 X 420) 3 192 000

3 192 000 – 3 296 000 = -104 000

 Gross profit earned on sale of shirts
A. Stock on hand
28 February 2021 1 March 2020
Work- in- progress ? R230 000
Finished goods 400 shirts , valued 900 shirts at R380 =
using FIFO method R342 000

E.Errors and omissions:

Cost of sales 400 x 420
Production and sales for the
342 000 + 3 192 000 – 168 000 = 168 000
year: = R3 366 000
7 600 shirts were produced at
a unit cost of R420 each. Gross profit = Sales – Cost of sales
8 100 shirts were sold for 4 860 000 - 3 366 000
= R1 494 000
R4 860 000.
 Mark-up % achieved on shirts

Cost of sales Gross profit 100

342 000 + 3 192 000 – 168 000 X
= R3 366 000 Cost of Sales 1

Gross profit = Sales – Cost of sales 1 494 000 / 3 366 000 X100
4 860 000 - 3 366 000 = 44.4%
= R1 494 000
 Information - Leather Manufacturers

INFORMATION:
PURSES JACKETS
2021 2020 2021 2020
Direct material cost per unit R100 R125 R360 R180
Direct labour cost per unit R135 R105 R280 R240
Selling and distribution cost per unit R20 R30 R60 R45
Total variable cost per unit R255 R260 R700 R465

Total fixed costs R936 000 R836 000 R1 706 250 R2 000 000

Number of units produced and sold 24 000 22 000 3 631 6 350

Break-even number of units ? 20 900 3 750 5 000
Selling price per unit R295 R300 R1 170 R780
 Break even –point
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
(𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 )
OR

𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

936 000 936 000

𝑶𝑹
(295 − 255) 40

23 400 (Break- Even )

 Production level vs Break - even point

Comment on the level of production achieved and the break-even point

for purses for 2021. Quote figures.

INFORMATION
PURSES
2021 2020

Number of units produced and sold 24 000 22 000

Break-even number of units 23 400 20 900
Selling price per unit R295 R300
 Production level vs Break - even point

Comment on the level of production achieved and the break-even point

for purses for 2021. Quote figures.
o The business produced 600 units more than break-even / profit on 600
units
o There is a decrease in profits on 500 units ,in 2020 profit was made on
1 100 and in 2021 profit was made on 600 units
o Production increased by 2 000 units (24 000 – 22 000) OR 9%
o BEP increased by 2 500 units (23 400– 20 900)
 Direct labour cost

Apart from inflation and wage increases, give TWO other possible
reasons for the increase in the direct labour cost per unit for purses.
(increased from 105 to 135)
o Overtime paid at higher rates endorsed or approved / bonus for good
performance or extra time.
o Low productivity of workers (not productive or efficient)
o Interruptions (due to malfunctioning machines / load-shedding /
COVID-19 lockdown
o Poorly trained workers / lack of supervision
o Highly qualified workers employed
 Direct material cost
Give TWO reasons for the decrease in the direct material cost per unit for
purses.

o Cheaper (new) or local suppliers used

o Took advantage of bulk discounts / negotiated discounts
o Better supervision / less wastage / better control over issuing
o Better cutting methods / use patterns or technology / better skilled
workers / better training of workers
o Cheaper transport costs / petrol costs / using own transport
 Selling price- jackets
Calculate the % increase in the selling price of the jackets.

INFORMATION
JACKETS
2021 2020

Selling price per unit R1 170 R780

1 170 -780 = 390

390/780 x 100 = 50%

 Selling price- jackets
Tello wants to increase profits on jackets by an additional R250 000 in
the next financial year. Assuming the cost structure remains the
same, calculate the total number of additional units he must
produce to achieve this target.
JACKETS
2021 2020
Direct material cost per unit R360 R180
Direct labour cost per unit R280 R240
Selling and distribution cost
per unit R60 R45
Total variable cost per unit R700 R465
Total fixed costs R1 706 250 R2 000 000
Number of units produced
and sold 3 631 6 350
Break-even number of units 3 750 5 000
Selling price per unit R1 170 R780
 Selling price- jackets

1 170 – 700 = 470

250 000
= 532 𝑢𝑛𝑖𝑡𝑠
470
 END OF SESSION ONE

END OF SESSION ONE

PURPOSE OF CASH BUDGET AND PROJECTED INCOME STATEMENT
CASH BUDGET PROJECTED INCOME STATEMENT

• Project / estimate the expected • Project / estimate the expected

bank balance at end of budget net profit for the budgeted period.
period. • Project / estimate / monitor /
• Project / estimate / monitor / control expected income and
control expected cash received expenses for budget period.
and paid over budget period.
 OBJECTIVES OF THE LESSON
CASH BUDGET PROJECTED INCOME STATEMENT
 CASH BUDGET ILLUSTRATION
32

CASH BUDGET
CASH RECEIPTS - CASH PAYMENTS

SURPLUS / DEFICIT

BANK (Opening balance)

BANK (Closing balance)

DEBTORS COLLECTION AND CREDITORS PAYMENT PERIOD
3
3

Credit
sales/Credit
purchases

• The first will be the last

NB: • The last will be the first
8. Calculations
CALCULATION ILLUSTRATION
34

Upside Down
House
CALCULATION ILLUSTRATION

Difference
Before

DBE
 CASH BUDGET

QUESTION IS EXTRACTED FROM THE 2020

NOVEMBER NSC PAPER
 INFORMATION
Blossom (Pty) Ltd sells expensive ladies' dresses of high quality. They
also repair dresses for customers, but they aim to break even on this
service.

Customers are allowed to buy dresses for cash or on credit, but they
are required to pay cash for all repairs.

The information relates to the budget period ending 31 May 2021.

REQUIRED:

3.1 Complete the Debtors' Collection Schedule for March to May

2021. (9)
 INFORMATION
A. Total sales and cost of sales:

MARCH APRIL MAY

Sales R560 000 R630 000 R770 000
Cost of sales 320 000 360 000 440 000

 Goods are sold at a mark-up of 75% on cost.

 Credit sales are expected to be 65% of total sales.

B. Expected debtors' collection based on the past:

 40% collected in the month of sale, less 6% discount for early payment
 50% collected in the month following the month of sale
 8% collected two months after the sale
 2% regarded as uncollectable two months after the sale
3.1 COMPLETE DEBTORS COLLECTION SCHEDULE
DEBTORS' COLLECTION SCHEDULE FOR MARCH TO MAY 2021

CREDIT
MARCH APRIL MAY
MONTHS SALES
R R R
R
January 204 750 16 380
February 250 250 125 125 20 020
March 364 000 136 864 182 000
April 409 500 153 972
May
278 369 335 992
 DEBTORS COLLECTION ILLUSTRATION
4
0
40% 50% 8%
(-6%)
Credit
sales/Credit
purchases
40%
8% 50%
(-6%)

• The first will be the last (Descending)

NB: • The last will be the first (Ascending)
 3.1 SUGGESTED SOLUTION
DEBTORS' COLLECTION SCHEDULE FOR MARCH TO MAY 2021

CREDIT SALES MARCH APRIL MAY

MONTHS
R R R R

January 204 750 16 380

364 000 x 8%
February 250 250 125 125 20 020 = 29 120

March 364 000 136 864 182 000 29 120

409 500 x 50%
=
April 409 500 153 972 204 750 204 750

May 500 500  188 188

278 369 335 992  422 058

500 500 x40%=200 200
770 000 x 65% = 200 200 x 94% (100%-6% )
500 500 188 188
 INFORMATION

Calculate the missing amounts indicated by (a) to (d) in the Cash Budget. (14)

INFORMATION:
A. Total sales and cost of sales:
MARCH APRIL MAY
Sales R560 000 R630 000 R770 000
Cost of sales 320 000 360 000 440 000
 Goods are sold at a mark-up of 75% on cost.
 Credit sales are expected to be 65% of total sales.
 INFORMATION
Extract from the Cash Budget:
MARCH APRIL MAY
RECEIPTS R R R
Cash sales 196 000 (a) 269 500
Cash from debtors 278 369 355 992 ?
Fee income (for repairs) 15 000 15 000 15 000
Loan from Janet Bloom (see Information D)
(b)
PAYMENTS
Payments to creditors 220 000 320 000 360 000
Salaries of sales assistants (see Information E) 22 400
(c) ?
Wages of repair staff 9 000 10 000 10 000
Consumable stores (for repairs) 4 200 4 200 4 200
Interest on loan 1 365 2 625 2 625
Rent expense (see Information F) (d) 39 960 39 960
Advertising 10 000 12 000 30 000
Audit fees 60 000
Calculate amount denoted by (a)
Cash sales
Extract from the Cash Budget:
MARCH APRIL MAY
RECEIPTS R R R
Cash sales 196 000 (a) 269 500
Total Sales for April amounts to R630 000
NOTE: Credit sales are 65%
Cash sales are : 100% - 65% = 35%
ANSWER
630 000 x 35% = 220 500
OR
409 500 /65% x35% = 220 500 ( Remember to use UK Method)
409 500 – is extracted from the debtors collection schedule
OR
630 000 - 409 500 = 220 500
 Calculate amount denoted by (B)
D. Loan from Janet Bloom:
 Janet Bloom has provided a loan to the business at an interest rate of 9% p.a. Interest is not
capitalised and one-third of the loan is repaid to her on 31 December each year.
 As the company was still experiencing cash flow problems owing to the Coronavirus lockdown
in 2020, Janet agreed to increase her loan to the business on 1 April 2021.
Extract from the Cash Budget:
MARCH APRIL MAY
RECEIPTS R R R
Loan from Janet Bloom (see
(b)
Information D)
PAYMENTS
Interest on loan 1 365 2 625 2 625
Loan received (b)

Loan
received
168 000

Extra interest payable Loan (x) x 1/12 x 0.09 (9%) =1 260

2 625 - 1365 =1 260 1 260 x12 ÷ 0.09 = 168 000
 Calculate amount denoted by (c)
E. Salaries of sales assistants:
 The sales assistants all earn the same monthly salary.
 They were promised a 5% increase in salaries with effect from 1 April 2021.
 The business employed two sales assistants in March and planned to employ an additional
assistant from 1 April 2021.

Extract from the Cash Budget:

MARCH APRIL MAY
PAYMENTS R R R
Payments to creditors 220 000 320 000 360 000
Salaries of sales assistants (see Information E) 22 400 (c) ?
Wages of repair staff 9 000 10 000 10 000
ANSWER
22 400 x 105/100 x3/2 = 35 280 ALTERNATIVE ANSWER
22 400 ÷ 2 = 11 200
11 200 x 105/100 x 3 = 35 280
 INFORMATION
F. Rent and number of customers:

 The directors secured premises in a local shopping mall from Propco Ltd with enough space to cater
for the expected number of customers.
 Rent is charged per square metre according to the floor area. The rent increased by 11% p.a.
commencing on 1 April.
 The following figures were identified for planning purposes:

MARCH APRIL MAY

Floor area in square metres (m2) 120 m2 120 m2 ?

Rent expense per m2 ? ? ?

Expected average sales per R7 000 R7 000 R7 000

customer
80 customers 90 customers 110
Expected number of customers
customers
Calculate amount denoted by (D)

Extract from the Cash Budget:

MARCH APRIL MAY
PAYMENTS R R R
Rent expense (see Information F) (d) 39 960 39 960
Advertising 10 000 12 000 30 000

Rent for march ( before increase or @ 100%)

39 960 x100/111 = 36 000 39 960 /111%= 136 000

Note UK Method is used : Unknown (100) 111% is the same as 1.11
Known (111) check from your calculator
 INFORMATION
3.3 Refer to Information G and H.
Advertising:
 Explain the decisions that the directors took regarding the budgeted and actual (4)
expenditure for advertising in May 2021. Quote figures or calculations.
 The directors ask you for a report on the effect that the advertising decisions have
actually had on customers and sales in May 2021.
- Provide TWO points that you would include in your report. Quote figures
(4)
or calculations.
- Explain how the decline in the national economy has affected the
(3)
average amount that customers spent in May 2021. Quote figures.
 INFORMATION
H. Comparison of budgeted figures to actual figures for May 2021:

BUDGETED ACTUAL
110 135
Number of customers
customers customers
R R
Sales 770 000 690 000
Fee income (repair service) 15 000 21 000
Advertising 30 000 42 000
Consumable stores (for repairs) 4 200 5 520
Wages (for repair staff) 12 000 18 000
Audit fees 60 000 48 000
Rent expense 39 960 31 968
Salaries (shop assistants) 35 280 37 044
Delivery expenses 6 930 4 850
Packing material 19 250 13 480
Suggested Answer
Decisions that the directors took regarding the budgeted and actual expenditure for
advertising in May 2021
Extract from the Cash Budget:
MARCH APRIL MAY
Advertising 10 000 12 000 30 000
MAY 2021
BUDGETED ACTUAL
Number of customers 110 customers 135 customers
R R
Advertising 30 000 42 000

o The actual advertising expense exceed the budgeted by R12 000,or by 40%.
o The budgeted advertising increased from R12 000 to R30 000 or by R18 000 or by 150%
NOTE we used :
 Information from actual and budgeted figures
 Information from the Cash Budget
Suggested Answer
The directors ask you for a report on the effect that the advertising decisions have actually had on
customers and sales in May 2021.
• Provide TWO points that you would include in your report. Quote figures or calculations.

MAY 2021
BUDGETED ACTUAL
Number of customers 110 customers 135 customers

Number of customers R R
Sales 770 000 690 000
Fee income (repair service) 15 000 21 000
Advertising Advertising 30 000 42 000

o The number of customers has increased from 110 to 135 or by 25 or by 22.7%

o The business did not reach the target of 770 000 their sales amounted to 690 000 or sales are
80 000 below the budget or 10.4% less.
NOTE : In most activities we compare sales and advertising but in this activity we had to
explain the effect to customers and sales.
Suggested Answer
The directors ask you for a report on the effect that the advertising decisions have actually had on
customers and sales in May 2021.
• Explain how the decline in the national economy has affected the average amount that customers
spent in May 2021. Quote figures
MAY 2021
BUDGETED ACTUAL
Number of customers 110 customers 135 customers

Number of customers R R
Sales 770 000 690 000
Fee income (repair service) 15 000 21 000
Advertising Advertising 30 000 42 000
o Average spending budgeted is 7 000 for May (770 000/110 customers),and the actual average spending is
5 111 (690 000/135 customer)
o Customers have increased by 25 due to increased advertising. The business has attracted customers who
have less spending power, they spend an average of 5 111 instead of 7 000.
o Customers prefer to repair than to buy new dresses, the actual fee income is above the budgeted fee of 15
000 or above by 6 000 or by 40%.
 INFORMATION
Consumable stores:
o Comment on whether the consumable stores have been well controlled or not. Quote
figures or calculations. (2)

H. Comparison of budgeted figures to actual figures for May 2021:

BUDGETED ACTUAL
110 135
Number of customers
customers customers
R R
Sales 770 000 690 000
Fee income (repair service) 15 000 21 000
Advertising 30 000 42 000
Consumable stores (for repairs) 4 200 5 520
Wages (for repair staff) 12 000 18 000
Audit fees 60 000 48 000
Suggested Answer

• Consumable stores budgeted were 31% or 1 320

( 5 520 - 4 200) above the budgeted figure, and the fee income
is 40 % or 6 000 (21 000 – 15 000) above the budgeted.
• Consumable stores were budgeted at 28% ( 4 200÷ 15 000)
of fee income and the actual expenditure was 26%
(5 520 ÷ 21 000) of actual fee income.
 INFORMATION
3.4 Refer to Information F and H.

Rental and customers:

The owners of the property, Propco Ltd, informed the directors of Blossom Ltd of the
increase in rent planned with effect from 1 April 2021.

In order to economise on rent, the directors asked the owners, Propco Ltd, for a reduction of
the area rented from 1 May 2021. Propco Ltd agreed to this request. Calculate the reduction
of the area rented (in square metres). (4)
INFORMATION ON RENTED SPACE

Comparison of budgeted figures to actual figures for May 2021:

BUDGETED ACTUAL
Number of customers 110 customers 135 customers
Audit fees R 60 000 R 48 000
Rent expense 39 960 31 968
Salaries (shop assistants) 35 280 37 044
Delivery expenses 6 930 4 850
Packing material 19 250 13 480
Calculate the reduced rented space in square metres

o Rent expense budgeted for April and May was R39 960
o Square metres rented was 120 m2
o Actual rent paid is R31 968 according to information H

R39 960 ÷ 120 = R333 per square metre

R39 960 - R31 968 = R7 992 (Reduction in Rands )

R7992 ÷ R333 = 24m2
END OF LESSON