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SECTION UNIT TOTAL TIME QUESTION MARKS

MARKS
A Activity-based costing and 30 45 1 5
Overheads 2 25
B Cost-volume-profit analysis 30 45 3 10
and decision making 4 20
C Standard costing and flexible 15 22.5 5 10
budgets 6 5
D Decision making under 15 22,5 7 15
conditions of risk and
uncertainty
E Pricing strategies 20 30 8 10
9 10
F Strategic management 10 15 10 5
11 5
Total 120 180
marks minutes

Use the following scenario to answer the questions in sections A to F. Additional

information will be given under each question.

Scenario

Mative Child is a hair care brand focused on natural, Afro-textured hair. They offer a range
of products specifically formulated for the needs of kinky, curly, and ethnic hair types. Their
products are made with natural and responsibly sourced ingredients like shea butter,
coconut oil, and avocado oil. They cater to all ages, with a dedicated kids' line alongside
their general hair care products. They prioritise healthy hair and a holistic approach to hair
and beauty care.
Mative Child has decided to capitalise on the growing popularity of its hair care products by
expanding its product line to include hairbrushes and hair accessories.
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SECTION A: ACTIVITY-BASED COSTING AND OVERHEADS (30 marks)

Question 1 (5 marks)
Write the question number (1.1 –1.4) in your answer book and the correct letter (A – D) next
to the corresponding question number.
1.1 Which of the following statements about using a plantwide overhead rate
(1)
based on direct labour is correct?

A Using a plantwide overhead rate based on direct labour-hours will ensure that
direct labor costs are correctly traced to jobs.
B Using a plantwide overhead rate based on direct labour costs will ensure that
direct labour costs will be correctly traced to jobs
C It is often overly simplistic and incorrect to assume that direct labour-hours are a
company's only manufacturing overhead cost driver.
D The labour theory of value ensures that using a plantwide overhead rate based on
direct labour will do a reasonably good job of assigning overhead costs to jobs.

1.2 Overapplied manufacturing overhead would result if: (1)

A The plant was operated at less than normal capacity.

B Manufacturing overhead costs incurred were less than estimated manufacturing
overhead costs.
C Manufacturing overhead costs incurred were less than manufacturing overhead
costs charged to production.
D Manufacturing overhead costs incurred were greater than manufacturing overhead
costs charged to production.

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Question 1 (Continued) (5 marks)

1.3 Mative Child bases its predetermined overhead rate on the estimated
machine-hours for the upcoming year. At the beginning of the most recently
completed year, the company estimated the machine-hours for the upcoming
year at 79 000 machine-hours. The estimated variable manufacturing
overhead was R7.38 per machine-hour and the estimated total fixed
manufacturing overhead was R2 347 090. Calculate the predetermined
overhead rate for the recently completed year (2)

A R37.09 per machine hour

B R36.07 per machine hour
C R7.38 per machine hour
D R29.71 per machine hour

1.4 In activity-based costing, the activity rate for an activity cost pool is computed (1)
by dividing the total overhead cost in the activity cost pool by:

A the direct labour-hours required by the product.

B the machine-hours required by the product.
C the total activity for the activity cost pool.
D the total direct labour-hours for the activity cost pool.

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Question 2 (25 marks)

Mative Child uses a traditional absorption costing system to allocate production overheads
to products using machine hours.

The newly appointed financial controller believes that activity-based costing can provide a
better allocation of production overheads to products than the current system does. The
following budgeted total production overheads were recorded by the cost accounting
system:

R
Utility cost related to machine hours 189 000
Production set-up cost 120 000
Cost of ordering materials 18 000
Cost of handling materials 33 000

Details of the three product models and relevant information for the last period are as
follows:

Protein Oil Hair Total

Shampoo moisturiser pudding
Number of 17 25 18 60
production runs
Number of material 20 30 40 90
orders
Number of material 30 100 70 200
requisitions
Units produced 1 000 2 000 2 500 5 500
Machine hours per 1 1.5 2
units
Direct labour hours 0.5 hour 1 hour 2 hours
per unit (R60 per
hour)
Direct materials per R10 R12 R15
unit

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Question 2 (continued) (25 marks)

Required
2.1 Calculate the unit product cost of each of the three products using: (i) the (20)
traditional absorption costing, and (ii) the activity-based costing approach.
2.2 Comment on your calculations in 5.1 above and explain why the activity- (5)
based costing approach is superior to traditional absorption costing.

End of Section A

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SECTION B: COST-VOLUME-PROFIT ANALYSIS AND DECISION MAKING (30 marks)

Question 3 (10 marks)

Write only the word (true or false) in your answer book next to the question number (3.1 –
3.6).
3.1 Mative Child’s margin of safety is R90,000. If the company’s sales drop by (1)
R85,000 (and costs remain unchanged), it will have a positive operating profit.
3.2 Mative Child sells a single hair bow for R25. The variable expense per unit is (1)
R15 and the fixed expense per unit is R5 at the current level of sales. The
company’s operating profit will increase by R5 if one more hair bow is sold.
3.3 The degree of operating leverage in a company is smallest at the break-even (1)
point and increases as sales levels rise.
3.4 The degree of operating leverage is computed by dividing sales by the (1)
contribution margin.
3.5 Incremental analysis is an analytical approach that focuses only on those (1)
items of revenue and cost that will change as a result of a decision.
3.6 An avoidable cost is a sunk cost that can be eliminated (in whole or in part) (1)
as a result of choosing one alternative over another.

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Question 3 (Continued) (10 marks)

Write the question number (3.7 – 3.9) in your answer book and the correct letter (A –
D) next to the corresponding question number.
3.7 When Mative Child introduced the line of kids’ haircare products, the factory (2)
had already reached capacity. The opportunity cost of manufacturing the kids
range in a factory with no excess capacity is the:

A Variable manufacturing cost of the kids’ line of haircare products.

B Fixed manufacturing cost of the kids’ line of haircare products.
C Net benefit forgone from the from the alternative use of the capacity.
D Total manufacturing cost of the kids’ line of hair care products.

3.8 Accepting a special order from a big hair salon will improve overall net (1)
operating income if the revenue from the special order exceeds:

A the incremental costs associated with the order.

B the sunk costs associated with the order
C the contribution margin on the order.
D the variable costs associated with the order.

3.9 Identify which of the following are valid reasons for Matice Child to eliminate (1)
a product line?
I The product line's contribution margin is negative.
II The product line's traceable fixed costs plus its allocated overhead
costs are less than its contribution margin.
A Only I
B Only II
C Both I and II
D Neither I or II

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Question 4 (20 marks)

Mative Child manufactures shampoo and crème relaxer in bulk 1 litre containers that is sold
to salons. The budgeted cost information for the month is as follow:

SHAMPOO CRÈME RELAXER

Selling price R200.00 R280.00
Material 1: coconut oil (R20 per litre) 0.5 l 1l
Material 2: avocado oil (R30 per litre) 1l 2l
Contribution per unit R50.00 R30.00
Other overhead costs per unit R10.20 R10.40
Profit per unit R30.80 R10.60

Demand 20 000 bottles 15 000 bottles

• The raw material available is as follow:

Material 1: Coconut oil 20 000 litres
Material 2: Avocado oil 30 000 litres
• No raw materials or unfinished goods are carried forward from one month to the next.
• Fixed overhead costs are R50 000 per month.

REQUIRED:

4.1 If Mative Child decided to only manufacture shampoo, determine the number (4)
of bottles of shampoo it would have to sell to reach a target profit of R100
000.
4.2 What is the break-even point in sales units for the Creme Relaxer only? (2)
4.3 If Mative Child sells 2000 units of Creme Relaxer, calculate the margin of
safety, and interpret the figure you have calculated. (4)
4.4 Determine if Mative Child have enough Coconut and Avocado Oil available to (2)
meet the demand for the month?
4.5 Determine the optimum product mix of Shampoo and Crème Relaxer for the (6)
month.

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4.6 Mative Child manufactures Combs (C) and Brushes (B). A minimum of 300 (2)
Brushes (B) must be produced. At least double as many Combs(C)must be
produced. Each Comb (C) requires 40 g of material and each Brush (B) require
10g of material. There are 5 000g of material available.

Identify which of following represent the correct set of constraints:

OPTION 1 2C+ B ≤ 5 000

2C ≥ 300
B ≥ 40C

OPTION 2 10C +40B ≤ 5 000

2C ≥ 300
B ≥ 300

OPTION 3 4OC + 10B ≤ 5 000

2C ≥ B
B ≥ 300

End of Section B

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SECTION C: STANDARD COSTING (15 marks)

Question 5 (10 marks)
A standard costing system was implemented several years ago to assist management to
plan monitor and control the activities of Mative Child. The most recent variance report
highlighted a favourable material price variance. The material usage variance on the other
hand was unfavourable.

5.1 Explain possible reasons for the favourable material price variance and unfavourable
material usage variance in your capacity as production manager.
(5)

The annual overhead performance report for Mative Child has just been released. The
summarized version of the report is as follows:

Overhead performance report

Actual Budget Variance Favourable/
Unfavourabl
e
Direct labour hours 90 000 95 000
Variable overhead costs (R):
Material 55 500 57 000 1 500 Favourable
Labour 82 100 85 500 3 400 Favourable

Fixed overhead costs (R): 828 000 41000 Unfavourable

5.2 Explain the difference between a static and a flexible budget. (2)

5.3 Evaluate the performance report given and explain why the variances are all
favourable. (1)

5.4 Fixed overhead cost of R828,000 was incurred during the year. Mative Child
applied R845,000 of fixed overhead costs to production and reported an
unfavorable budget variance of R41,000.
Determine the budgeted fixed overhead cost. (2)

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Question 6 (5 marks)
The material specifications for one bottle of Shampoo indicates that the following raw
materials is used:

Standard composition for one bottle:

Coconut oil 10 ml @ R3.00 = 30,00

Shea butter 14 ml @ R2.00 = 28,00
Avocado oil 8 ml @R1.50 = 12,00
32ml

Material issued to produce 100 bottles of Shampoo:

Coconut oil 1100 ml @ R3,25

Shea butter 1250 ml @ R2,00
Avocado oil 90 ml @ R1,20

REQUIRED:
6.1 Calculate the mix variances for the materials used to manufacture the (5)
Shampoo.

End of Section C

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SECTION D: DECISION MAKING UNDER CONDITIONS OF RISK AND UNCERTAINTY

(15 marks)
Question 7 (15 marks)
Write the question number (7.1 – 7.5) in your answer book and the correct letter (A – D)
next to the corresponding question number.

7.1 Before expanding the product line to include hairbrushes and hair
accessories, senior management decided to investigate the hair accessories
(2)
market. To gain additional information to aid in decision making Mative Child
will pay:

A an amount equal to the value of the information that is already available in the
current situation.
B an amount equal to the most likely benefit that the information will provide
C an amount equal to the value of the decision with perfect information less the value
of the current situation.
D the expected price of the information.

7.2 Mative Child is considering at what price the hairbrushes must be sold. The
potential payoff table based on the selling price and demand for the hairbrush
is as follow:

Demand Selling price

level
R20 R30 R35 R40
Good R 6 000 R 8 000 R9 000 R7 000
Moderate R 5 000 R10 000 R6 000 R3 000
Weak R 4 000 R 2 500 R3 000 R2 000

If the maximin criterion is applied, determine the price at which Mative Child
should sell the hairbrushes. (2)
A R20
B R30
C R35
D R40.

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Question 7 (continued) (15 marks)

7.3 The financial manager of Mative Child does not like uncertainty and variability.
(1)
Identify the most appropriate decision criteria for him:

A Maximin criteria
B Maximax criteria
C Minimax criteria
D Minimin criteria

7.4 A new project manager was appointed for the hairbrush and accessory line.
The project manager is optimistic that the line will be a huge success and is
(1)
willing to take the necessary risks to make it a success. Identify the most
appropriate decision criteria for him:

A Maximin criteria
B Maximax criteria
C Minimax criteria
D Minimin criteria

7.5 Mative Child has always applied the maximin criteria as decision rule. The
(1)
maximin criteria would be to select the outcome that provides the:

A best return if the best happens.

B largest expected return if the worst happens.
C total best return for all states of the environment
D best return if the worst happens.

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Question 7 (continued) (15 marks)

Use the below information to answer questions 7.6 and 7.7

The new project manager of Mative Child must choose between two mutually
exclusive alternatives in the new hair accessories range.
Alternative 1 is a functional comb (Comb). The comb will be marketed that is
best suited to high levels of demand whereas alternative 2 (Detangles comb)
is a luxury product that is best suited to low levels of demand. There are only
two possible levels of demand - high and low and the probabilities of each
event occurring is 0.5. The predicted profits for each alterative are:

Low demand (R) High demand (R)

Comb 40,000 25,000
Detangles comb 20,000 18,000

7.6 Advise the project manager which alternative should be selected if the
3
maximin criterion is applied. Motivate your answer.
7.7 Mative Child estimates that launching the new hair accessories line has an
60% probability of success. The project manager is considering undertaking
an advertising campaign at a cost of R40,000 which would increase the
probability of success to 90%. If successful the product would generate
income of R840,000 otherwise R595,000 would be received.
Determine the maximum amount that Mative Child should be prepared to pay
for advertising? 5

End of Section D

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2024

SECTION E: PRICING STRATEGIES (20 marks)

Question 8 (10 marks)
Write the question number (8.1 –8.7) in your answer book and the correct letter (A – D) next
to the corresponding question number.
8.1 Mative Child uses the absorption costing approach with cost-plus pricing to (2)
set prices for its products. Based on budgeted sales of 850 units next year,
the unit product cost of a particular hair oil is R50.80. The company's selling
and administrative expenses for this product are budgeted to be R1 800 000
in total for the year. Mative Child has invested R500,000 in the hair oil and
expects a return on investment of 15%.
The selling price for hair oil based on the absorption costing approach would
be closest to:

A R42.00
B R43.42
C R72.86
D R90.25

8.2 Mative Child would like to employ a target costing system for their new hair (2)
growth serum. The likely selling price is R200 per bottle; expected sales is
1,500 bottles; investment required is R1,000,000. If Mative Child requires a
12% ROI, calculate the target cost per bottle.

A R160
B R170
C R180
D R120

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Question 8 (10 marks)

8.3 If the lowest acceptable transfer price to the selling division of Mative Child (2)
for a hairbrush is R90 and the lost contribution margin per unit on external
sales is R40, then the variable cost per unit would be:

A R90
B R40
C R130
D R50

8.4 The target cost for a product is computed by: (1)

A Deducting the anticipated selling price form the product’s anticipated total cost.
B Adding the product’s anticipated selling price and the desired profit.
C Deducting the desired profit from the product’s anticipated selling price.
D Adding the product’s anticipated total cost and desired profit.

8.5 A transfer price is the price charged: (1)

When one department of a company provides goods or services to another

A
department of the company.
When one department of a company sells goods or services to customers in
B
another country.
C When a company sells goods or services to another company.
D When a company transfers goods or services to its customers.

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Question 8 (10 marks)

8.6 Demand for a product is said to be inelastic (1)

A If a change has little effect on the number of units sold.

B If a change in supply equals a change in demand.
C If the supply of the product is inversely proportional to the change in the price.
D If the supply of the product is directly proportional to the change in price.

8.7 One of the assumptions of target costing is that: (1)

A Cost is irrelevant
B The product has already been developed
C The company already know the price that will be changed.
D The company has effective control over pricing.

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Question 9 (10 marks)

The hair care product line for Mative Child consists of two divisions, Moisture Mane, and
Liquid Gold. Both divisions make two standard products. Liquid produces hair oil which they
supply to Moisture Mane and sells to external customers. Moisture makes hair moisturiser
using the hair oil as a component and other material. They then sale the product to external
customers. They have always bought their hair oil component from the Liquid Gold division.

The two divisions run as autonomously as possible, however the current policy is that Liquid
Gold must supply Moisture Mane first before selling externally. Moisture Mane requires 1000
bottles of hair oil each month. The current transfer price is R56. However, due to the
increased repo rates and implications of loadshedding on the cost of production, the
management accountant has asked that you review the transfer price. They have provided
the following details for Liquid Gold Hair Oil:

Selling price R80

Production capacity 3000 bottles
Expected sales 2500 bottles
Variable cost R42
Fixed cost R60 000

REQUIRED:
9.1 Calculate the lost sales volume incurred by the business from supplying (2)
internally.
9.2 Calculate the acceptable transfer price for Liquid Gold. (3)

9.3 Advise the management accountant on the current transfer price between the (1)
two departments.

9.4 The departments have proposed that they can increase the production capacity (4)
from 3 000 to 3 400 bottles. This increase will result in an increase in variable
costs by 13% and increased fixed costs by 6%. All other production costs will
remain constant. Calculate the acceptable transfer price after these changes
have been effected?
End of Section E

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SECTION F: STRATEGIC MANAGEMENT ACCOUNTING (10 marks)

Question 10 (5 marks)
Write only the word (true or false) in your answer book next to the question number (10.1 –
10.5).
10.1 In attribute costing, brand value and the costs of quality cannot be the basis (1)
for managerial decisions.
10.2 In a balanced scorecard, internal business processes are what the company (1)
does in an attempt to satisfy customers.
10.3 If the manufacturing cycle efficiency is less than 1 then non-value-added (1)
time is present in the production process.
10.4 Strategic management accounting is not concerned with the (1)
implementation of strategies.
10.5 In a lean company, cost management is vital, but it must also include feed (1)
forward features as well as feedback features.

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Question 11 (5 marks)
Write the question number (11.1 – 11.5) in your answer book and the correct letter (A – D)
next to the corresponding question number.
11.1 Employee retention is an example of which performance measure? (1)

A Financial perspective
B Customer perspective
C Internal business process perspective
D Learning and growth perspective

11.2 The percentage of customers retained from the last period is an example of (1)
which performance measure?

A Financial perspective
B Customer perspective
C Internal business process perspective
D Learning and growth perspective

11.3 Which of the following is not a key principle of strategic management

(1)
accounting?

A Financial reporting
B Collection of information
C Explanation of cost reduction opportunities
D Matching of account emphasis with strategic position

11.4 The first steps to the profit planning are not based on: (1)

A Pricing
B High living
C Flexible budgeting
D Cost behaviour

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Question 11 (Continued) (5 marks)

11.5 Which of the following is not a business function of the value chain? (1)

A Distributing
B Product design
C Strategic thinking
D Research and development

End of Section F

End of assessment
All the best

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