COSBUS2

NOVEMBER 2013 EXAMINATION

DATE: 5 NOVEMBER 2013

TIME: 14H00 – 17H00 TOTAL: 100 MARKS

DURATION: 3 HOURS PASS MARK: 40%

(BUS-CA2)
COST AND MANAGEMENT ACCOUNTING 2

THIS EXAMINATION PAPER CONSISTS OF 4 SECTIONS:

SECTION A: CONSISTS OF:

(i) 10 MULTIPLE-CHOICE QUESTIONS (10 MARKS)
(ii) 5 TRUE OR FALSE QUESTIONS (10 MARKS)
(iii) 10 MATCHING-STATEMENT QUESTIONS (10 MARKS)
ANSWER ALL THE QUESTIONS

SECTION B: CONSISTS OF 3 SHORT QUESTIONS

ANSWER ALL THE QUESTIONS (10 MARKS)

SECTION C: CONSISTS OF 3 LONG ANSWER QUESTIONS

ANSWER ALL THE QUESTIONS (40 MARKS)

SECTION D: CONSISTS OF 2 INTERPRETATIVE QUESTIONS

ANSWER ONE OF THE QUESTIONS (20 MARKS)

INSTRUCTIONS:

1. Read the following instructions carefully before answering the paper, as failure to act upon them will
result in a loss of marks.
2. Write your answers in your answer book, which is provided in the exam.
3. Ensure that your name and student number are clearly indicated on your answer book.
4. Write your answers in either blue or black ink in your answer book.
5. Read each question very carefully before you answer it and number your answers exactly as the
questions are numbered.
6. Begin with the question for which you think you will get the best marks.
7. Note the mark allocations for each question – give enough facts to earn the marks allocated.
Don't waste time by giving more information than required.
8. You are welcome to use diagrams to illustrate your answers.
9. Please write neatly – we cannot mark illegible handwriting.
10. Any student caught cheating will have his or her examination paper and notes confiscated.
The College will take disciplinary measures to protect the integrity of these examinations.
11. If there is something wrong with or missing from your exam paper or your answer book, please inform
your invigilator immediately. If you do not inform your invigilator about a problem, the College will not
be able to rectify it afterwards, and your marks cannot be adjusted to allow for the problem.
12. This paper may be removed from the examination hall after the examination has taken place.
NOTE: YOU MAY USE A NON-PROGRAMMABLE CALCULATOR.
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 COST AND MANAGEMENT ACCOUNTING 2

__________________________________________________________________________
SECTION A (30 MARKS)
__________________________________________________________________________
ANSWER ALL THE QUESTIONS
__________________________________________________________________________

(i) MULTIPLE-CHOICE QUESTIONS

Choose the correct option for each of the following. Write only the question
number and your chosen answer. For instance, if you think that the correct
answer for number 1 is (a), then write it as 1. (a).

1. An economic condition where prices in general rise while the purchasing

power of money is declining is termed as:

(a) the time value of money.

(b) inflation.
(c) the rate of return.
(d) the nominal interest rate.

2. Which one of the following budgets begins entirely from scratch, where
each budget item must be justified?

(a) incremental budget.

(b) sales budget.
(c) high-low budget.
(d) zero-based budget.

3. The following details are available in respect of two machines:

Machines
A B

Cost R20 000 R20 000

Economic life 5 years 7 years
Average annual cash inflow during economic life R10 000 R5 000

The payback period of machine A is:

(a) 5 years.
(b) 4 years.
(c) 3 years.
(d) 2 years.

4. Using the same information above, the payback period of Machine B is:

(a) 5 years.
(b) 4 years.
(c) 3 years.
(d) 2 years.

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 COST AND MANAGEMENT ACCOUNTING 2

5. One enterprise is regarded as 'the leader' who traditionally determines the

price of a product, while other competitors follow suit. This is price:

(a) fixation.
(b) skimming.
(c) leadership.
(d) determination.

6. A job analysis is carried out before preparing a:

(a) labour budget.
(b) master budget.
(c) capital budget.
(d) None of the above.

7. The prime costs and overhead costs make up:

(a) the cost of sales.
(b) the final costs.
(c) the manufacturing costs.
(d) total costs.

8. Consider: Principle of R10 000; Rate at 10%; Time over 5 years.

Simple interest is calculated as:

(a) R5 000.
(b) R5 500.
(c) R50 000.
(d) R50 500.

9. Which statement is true regarding the current value index?

(a) If the result is less than 1 the investment is profitable.

(b) The result has to be ranked on a scale between 0 and –1.
(c) If the result is less than 1 the investment is not profitable.
(d) None of the above.

10. Cost-volume-profit analysis:

(a) is the difference between sales, variable costs and profit.

(b) examines the relationships between total volume, total costs, total
revenues and profits.
(c) is the marginal income after fixed costs have been deducted.
(d) All of the above. [10]

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 COST AND MANAGEMENT ACCOUNTING 2

(ii) TRUE OR FALSE QUESTIONS

Indicate whether the following statements are True or False. Motivate all
your answers.

1. Absorption costing is a product costing approach that does not treat both
variable and fixed manufacturing costs as product cost.

2. The maximum price that an enterprise can charge for its products is
determined by economic and political factors, competition and the
availability of substitute products.

3. Mortgage bonds are short-term loans that are usually secured by fixed
property of the company and that bear a variable rate of interest.

4. A lease is a contract that grants the lessee a right to use assets, legally
owned by the lessor, in exchange for a specified rental.

5. The working capital ratio is calculated by dividing current assets by current

liabilities The general rule from experience is that the ratio should be at
least 1 : 1. [5 × 2 = 10]

(iii) MATCHING-STATEMENT QUESTIONS

Match the statements in Column B to the terms in Column A. Write down the
answers only, for example 1. (a).

Column A Column B
1. break-even point (a) used to optimise allocation of limited
resources
2. cost of capital (b) long term financing for permanent assets
and proportion of fluctuating current assets
3. budget committee (c) ratio between current value of net cash
receipts and current value of investment
4. lease (d) analyses and approves budgets
5. linear programming (e) contribution and overheads are equal
6. equity (f) ordinary and preference shares
7. current value index (g) profit margin added to total cost of product
8. price fixing (h) contract with lessee to acquire rights to
use asset legally owned by lessor in
exchange for a rental payment by lessee
9. cost plus method (i) rate that must be earned to satisfy the
combined required rates of return of
company’s investors
10. conservative financing (j) prohibited by the competition act
policy
[10]

[30]

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 COST AND MANAGEMENT ACCOUNTING 2

__________________________________________________________________________
SECTION B: SHORT QUESTIONS (10 MARKS)
__________________________________________________________________________
ANSWER ALL THE QUESTIONS
__________________________________________________________________________

QUESTION 1

Define the following terms:

(a) functional budget (1)

(b) master budget (1) [2]

QUESTION 2

Name two examples of functional budgets. [2]

QUESTION 3

(a) i. What is capital budgeting? (1)

ii. The profitability of an investment decision depends on two
vital factors. What are these two factors? (2)

(b) Name the three phases of the implementation of a capital budget. (3) [6]

[10]

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 COST AND MANAGEMENT ACCOUNTING 2

__________________________________________________________________________
SECTION C: LONG ANSWER QUESTIONS (40 MARKS)
__________________________________________________________________________
ANSWER ALL THE QUESTIONS
__________________________________________________________________________

QUESTION 1

(a) Explain fixed and variable costs. (2)

(b) The following is an extract from G Gideon Ltd:

R
Direct Expenses 1 500
Overheads 3 000
Direct labour for Job A 100
Direct labour for Job B 80
Direct material for Job A 80
Direct material for Job B 60

i. Calculate the overhead percentage. (2)

ii. Apply the overhead percentage to both jobs to calculate the total
cost per job. (6) [10]

QUESTION 2

Brass Instrument Manufacturers are in the process of setting up their budget

for the next financial year. The sales director forecast volumes as follows:

Product Volume
Bugle 1 000
Trumpet 900
Trombone 750

Selling prices are determined by adding a mark-up to the cost price.

Product Cost Price R Mark Up

Bugle 350 30%
Trumpet 600 33%
Trombone 1 200 25%

You are required to:

(a) Determine the selling price for each product. (3)

(b) Calculate the sales budget. (5)

(c) Calculate the forecast gross profit. (2) [10]

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 COST AND MANAGEMENT ACCOUNTING 2

QUESTION 3

The following information relates to GC Company for the current year:

Common Special Total

R
Units produced 6 000 2 000
Direct material cost R60 000 R100 000 160 000
Direct labour hours 6 000 4 000
Direct labour costs R60 000 R80 000 140 000
Number of set ups 40 40
Number of design changes 12 8
Overhead cost:
Set up 80 000
Design changes 60 000
Other 140 000
Total manufacturing costs 580 000

You are required to:

(a) Calculate the cost per unit for each product. Traditional product costing
is used to calculate overheads rates, based on direct labour hours. (10)

(b) Calculate the cost per unit for each product when ABC is used to calculate
overhead rates with the following cost drivers:

Activity Cost Driver

Set up costs Number of set ups
Design changes Number of designs changes
Other Direct labour hours (10) [20]

[40]

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 COST AND MANAGEMENT ACCOUNTING 2

__________________________________________________________________________
SECTION D: INTERPRETATIVE QUESTIONS (20 MARKS)
__________________________________________________________________________
ANSWER ONE OF THE QUESTIONS
__________________________________________________________________________

QUESTION 1

(a) The decision whether to obtain finance by means of borrowed capital or

equity is based on the principle of risk compared to return. The following
factors must be taken into consideration:

• return
• risk
• control.

Discuss each factor. (10)

(b) Give a detailed distinction between operating and financial leases. (10) [20]

OR

QUESTION 2

(a) List the factors that can influence gross profit. (4)

(b) Explain the ratio, turnover of debtors. (4)

(c) Explain the working capital ratio. (5)

(d) Write the formula for debt ratio. (2)

(e) List five limitations of ratio analysis. (5) [20]

[20]

Section A: 30 marks
Section B: 10 marks
Section C: 40 marks
Section D: 20 marks
TOTAL: 100 MARKS

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