HMAC330-1

APPLICATION OF MANAGEMENT ACCOUNTING

JESSICA UYS

FA1
QUESTION 1

1.1

Total Material Cost = R37,000

Total Labour Cost = R24,000
Total Variable Manufacturing Costs = One-third of R30,000 = 30,000/3=R10,000

Total Variable Costs:

37,000+24,000+10,000=R71,000

71,000/8,000

=R8.875

Contribution Per Unit

15−8.875=R6.125

Break-even point is calculated using:

BEP= TOTAL FIXED COST//CONTRIBUTION PER UNIT

= 30,000×2/3

= 20,000

TOTAL FIXED COST= 20,000

BEP= 20 000/6.125

= 3,265.31≈3,266 units
Margin of Safety is calculated using:

MOS (units)=Actual Sales−Break-even Sales

MOS=8,000−3,266=4,734 units

MOS (value)=MOS(units)×Selling Price per Unit

4,734×15=R71,010

1.2

New Variable Cost Per Unit

8.875+3=R11.875

Calculate New Contribution Per Unit

Contribution per unit=Selling Price per Unit−Variable Cost per Uni

22−11.875=R10.125

New Total Contribution

Total Contribution=Contribution per unit×New Sales Volume

10.125×7,350=R74,618.75

Calculate New Total Fixed Costs

New Fixed Costs=Original Fixed Costs+Increase in Fixed Costs

20,000+6,000=R26,000

Calculate Profit or Los

Profit=Total Contribution−Total Fixed Costs

74,618.75−26,000=R48,618.75

Makita Industries Ltd. will earn a profit of R48,618.75.

1.3

Selling Price per Unit = R15

Variable Cost per Unit = R8.875 (previously calculated)

Fixed Costs = R20,000

BEP (Makita)= 20,000/15-8.875

=3,266 units

Lumina Ltd.

=30,000/16-6

3,334 units

Compare Operating Leverage

Degree of Operating Leverage (DOL)= Total Contribution/PROFIT

Makita Industries Ltd.

=49 000/29 000

=1.69

Lumina Ltd.

=72 000/42 000

=1.71
 Break-even Point: Lumina has a slightly higher BEP (3,334 vs. 3,266 units),
meaning it must sell more to cover its costs, increasing risk.
Operating Leverage: Lumina’s DOL (1.71) is slightly higher than Makita’s (1.69),
meaning it has greater sensitivity to sales fluctuations, making it riskier.
Fixed Cost Burden: Lumina has higher fixed costs (R30,000 vs. R20,000),
meaning it has more financial commitment before reaching profitability.

1.4

Contribution per unit=Selling price per unit−Variable cost per unit

Contribution per desk=2,950−2,200=R750

Contribution per chair=2,750−780=R1,970

WACM=(1/3×Contribution per desk)+(3/4×Contribution per chair)

=(1/4×750)+(3/4×1,970)

=187.50+1,477.50

=R1,665

total Break-even Sales Volume

=1,800,000/1665

1,081.08≈1,081 sales units (total)

Allocate BEP Units to Each Product Based on Sales Mix

Solid Wood Desks BEP:

1/4×1,081=270.25≈270 desk
Upholstered Chairs BEP

3/4×1,081=810.75≈811 chairs
QUESTION 2

Calculate Contribution per Unit for Each Product

Contribution per unit=Selling Price−Variable Costs

=50−(6+3+20+13)=50−42=8

Flavour Puffs Contribution per Unit:

60−(14+6+15+1)=60−36=24

Identify the Binding Constraints

Mixing Department: 2,500 machine hours available

Packaging Department: 5,000 labour hours available

Calculate Machine and Labour Hour Requirements

X be the number of Crunchy Bites produced

Y be the number of Flavour Puffs produced

Mixing department

3X+6Y≤2,500

Packaging department (labour hours required per unit):

20X+15Y≤5,000

Contribution per Machine Hour

8/3=2.67 (Crunchy Bites)

24/6=4 (Flavour Puffs)

he Mixing department is the bottleneck. If we only produce Flavour Puffs:

6Y=2,500

Y=2600/6

=416.67≈416 (rounding down)

6(416)=2,496 hours

Remaining machine hours:

2,500−2,496=4 hours

Since Crunchy Bites requires 3 hours per unit, we can produce:

X=4/3 =1.33=1

Flavour Puffs: 416×15=6,240416 \times 15 = 6,240416×15=6,240 hours (exceeds

limit of 5,000 hours)

Y=5000/15 =333 UNITS

For Y=333Y = 333Y=333, required machine hours:

6×333=1,998

REMAINING MACHINE HOURS

2,500−1,998=502

Crunchy Bites production:

X=502/3 =167 units

PACKAGING HOURS USED : (167×20)+(333×15)=3,340+4,995=5,000

MAXIMUM PROFIT:

Total Contribution=(167×8)+(333×24)

=1,336+7,992

=9,328

Thus, Mafuri Foods Inc.'s maximum profit is R9,328 when producing 167 units of
Crunchy Bites and 333 units of Flavour Puffs.
QUESTION 3

3.1

Marginal costing treats fixed production overheads as period costs and

expenses them immediately.
Absorption costing includes fixed production overheads in the cost per unit and
expenses them when sold.
Absorption costing shows higher profit when production exceeds sales, while
marginal costing shows higher profit when sales exceed production

3.2

CALCULATIONS RAND
SALES (12600-2200)×150 1 560 000

LESS: VARIABLE 10,400×(7.50+26+19+5.50) (707,200)

COST OF SALES

OPENING (3000+8900-10 500) ×150 210 000

INVENTORY
VARIABLE 17.50+26+19=R62.50 × 10 500 650,000
PRODUCTION
COST

LESS CLOSING 2 200 ×150 (330 000)

INVENTORY
 VARAIBEL SELLING, 10,400×5.50 =R57,200= (57 200)
DISTRIBUTION AND
ADMIN COST

LESS: FIXED Total Fixed Costs=R111,280+R75,000 (R186,280)

COSTS
PRODUCTION 10,400×10.70 111,280
SELLING 6,250×12 75,000
,DISTRUBUTION
AND ADMIN
PROFIT (LOSS)

3.3

CALCULATIONS RAND

SALES (12600-2200)×150 1 560 000

COST OF SALES (1 185 840)
OPENING OF (3000+8900-10 500) 210 000
INVENTORY ×150
DDIRECT MATERIALS (3000+8900-10500) 24 500
×R17.50
DIRECT LABOUR (3000+8900-10500) ×R26 36 400
Variable manufacturing 1400 ×19 26 600
overheads
Fixed manufacturing 1400 ×10.70 14 980
overheads

Production
Direct materials 12 600 ×R17.50 220 500
Direct labour 12 600 × R26 327 600
Variable manufacturing 12 600 × R19 239 400
overheads
 Fixed manufacturing 12 600 × R10.70 134 820
overheads

Closing inventory 2 200)×150 330 000

Direct materials 2 200 ×R17.50 38 500
Direct labouR 2 200× R26 57 200
Variable manufacturing 2 200× R19 41 800
overheads
Fixed manufacturing 2 200× R10.70 23 540
overheads
Gross profit 374 160

QUESTION 4

4.2

sunk Costs — The sunk cost of the original expense is an historical cost, and since
this cannot be changed, it should not impact a decision about the future.

Replacement or Opportunity Cost – The current market price or best alternative use
is more relevant than the original cost to decide using or replacing materials.

Obsolescence or Scrap Value – If materials are obsolete or worthless except for

sale as scrap, the relevant cost is the recoverable amount, not the initial price

4.2

Historical Cost Accounting – The principal purchase price of an inventory is used

when value is assigned to an inventory for financial statements.
Costing Systems – The primary cost (actual cost) is the basis for calculating the cost
of the whole production in job or process costing and setting the selling prices.

Contractual arrangements – if a contract includes cost-plus pricing, for example, the

initial cost directly affects the final price borne by customers.

Budgeting and Cost Control – Helping with variance analysis and cost control by
analyzing actual material costs vs original purchase prices.

4.3

Calculate Revenue from the Special Order

Revenue=Units Ordered×Selling Price per Unit

450×R4895

R2202750

We consider only the incremental or avoidable costs.

1. Steel Panels

• Already available with a book value of R85 per unit.

• No alternative use, but can be sold as scrap for R70.50 per unit.
• Relevant cost = Opportunity cost (scrap value)

450×18×R70.50=R570150

Available at the Durban branch at a book value of R50 per unit.

Used in normal production, so the replacement value (R65 per unit) is relevant.

Additional transportation cost = R8 700.

Total cost=(450×25×R65)+R8700
731250+R8700=R739950

Workers will be reallocated from another project.

Current workers earn R25 per hour, but new workers for the other project will be
hired at R40 per hour.

Relevant cost = Cost of hiring additional labour:

Total cost=450×30×R40

R540000

Existing staff will handle supervision, so no additional cost.

Supervision cost = R0.

Specialised Software

• Purchase cost = R30 000.

• Resale value = R18 000.
• Relevant cost = Net cost:

R30000−R18000=R12000

Calculate Total Relevant Costs

R570150 (Steel Panels)+R739950 (Electronic Controls)+R540000 (Labour)+R12000

(Software) =R1862100

Calculate Profit/Loss from Special Order

Profit/Loss=Revenue−Total Relevant Costs

R2202750−R1862100
R340650

Conclusion

Since the special order will generate an additional profit of R340 650, Harmony
Home Decor should accept the order.

4.4

Disruption to Standard Production Schedules – Committing to this order may

shift focus away from regular manufacturing activities, potentially causing scheduling
conflicts or inefficiencies in meeting existing commitments.

Long-Term Pricing Strategy Risks – Offering a lower price for this bulk order
could lead to market expectations for similar discounts in the future, possibly
devaluing the brand and impacting profitability in standard sales.

Workforce Productivity and Retention – Redirecting skilled workers to the

special order while hiring temporary replacements for other projects may affect
overall productivity, job satisfaction, and employee retention.

Supplier and Logistics Challenges – The need to transport electronic

components from the Durban branch could highlight logistical inefficiencies or create
dependencies that might affect cost management in future projects.

Strategic Business Growth Opportunities – If fulfilling this order strengthens

relationships with the local community, it might open doors for repeat orders,
referrals, or brand loyalty that could benefit the company beyond immediate profits.

REFERENCING

• Atrill, P. & McLaney, E. (2022) Management Accounting for Decision Makers.

10th edn. Pearson Education.
• Bragg, S.M. (2023) Cost Accounting Fundamentals: Essential Concepts and
Examples. 6th edn. Accounting Tools.
• Drury, C. (2021) Management and Cost Accounting. 11th edn. Cengage
Learning.