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 EASY WAY.
books consider students’ diverse learning experiences. -recall-remember and then apply what you’ve learnt.
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Teaching and learning features that encourage self-study and harness an attitude of always learning.
     End of chapter questions
      Key concepts
Test yourself
Case studies
Summary
Management accounting is a key function within an organisation. It provides management with relevant information for decision making and its importance within internal manage­
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     Case study: Ace Fertilizer Company: Ethical cost allocations and price determination
       This case illustrates how profit maximisation goals have the potential to influence ethical decision making. Abbey, the Assistant Director of manufacturing, has the opportunity to enhance both company profitability and reduce the purchase costs of a product for the brother of George Smilee, the Director of manufacturing. However, that decision would shift costs to another customer, Breezland Ltd. Being a chartered management accountant (CMA), Abbey is appropriately using the Chartered Institute of Management Accountants (CIMA) Code of Ethics as a guide to the proper course of action.
Source: http://www.imanet.org/resources_and_publications/ima_educational_case_ journal/issues/volume_2_issue_3.aspx (adapted)
Required:
You are required to assume Abbey’s position and investigate an appropriate course of action.
248
249
Exercises
(c) Office salaries
(d) Cost of a new computer A flexible budget is:
(a) a budget that changes as the volume of activity changes.
(b) a budget for a specific period of time, including planned revenues, expenses,
9.1 Complete the crossword below.
9.3
10
ACROSS
Total sales
Total variable cost Total contribution
292 924 220 053 72 871
271 888 209 241 62 647
281 973 212 536 69 437
6 A shortage in cash
9 A budget for which the costs are adjusted because the actual activity was not the same as the
planned activity
10 Budget processes where all department can set their own budgets DOWN
1 That factor which puts a limit on the activities of an organisation
2 A long-term plan that is prepared by an organisation in order to reach its goals
3 A way in which budgets are expressed in order to make them useful for decisions
4 A document that tells people how a budget must be prepared
5 Comparing the original plan with what happened in the organisation over a period of time
7 A type of positive behaviour which budgets help organisations to accomplish
8 A budget that needs to be prepared from zero each time, with all expenses having to be
The expenditure variance for the period was:
(a) R10 224 favourable
(b) R3 434 adverse
(c) R6 790 adverse
Cost Management Acc_Chap 09.indd 248
2015/10/26
6:42 AM
Cost Management Acc_Chap 09.indd 249
2015/10/26
6:42 AM
justified
Table 9.52 Tersle (Pty) Ltd cost and usage information
Boot (per pair)
Shoe (per pair)
9.2 Of the costs shown below and on page 249, which would not be included in the cash budget of a car dealership?
(a) Depreciation of assets
(b) Commission paid to dealers
Direct materials
Leather at R50 per square metre (m2) Rubber at R10 per square metre (m2)
2,5 m 1 m 10 hours
1,5 m 1 m 7 hours
Cost and Management Accounting
Budgets
3
2
4
assets, liabilities and cash flow.
(c) a budget that is prepared for one year, whereby each time actual results are
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9.4
reported, a further forecast period is added. (d) a budget of production costs only.
A master budget consists of:
(a) a budgeted statement of comprehensive income.
(b) a budgeted cash flow statement, budgeted statement of comprehensive
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income and budgeted statement of financial position.
(c) a budgeted cash flow statement.
(d) the entire set of budgets prepared.
A budget that is prepared for one year, whereby each time actual results are reported, a further forecast period is added.
(a) Incremental budget
(b) Rolling budget
(c) Master budget
(d) Zero-based budget
A recent budgetary control report shows the following:
1
9.5
9.6
Table 9.51 Budgetary control report
Fixed budget
Flexible budget
Actual results
(d) R3 434 favourable
9.7 Tersle (Pty) Ltd manufactures two types of handmade shoes: a boot and a
normal shoe. Cost and usage information for the two products are as follows:
Direct wages at R15 per hour
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Key concepts
Allowances are additional perks that are given to employees such as travel, cell phone or housing allowances.
Fixed monthly salary refers to a fixed rate of remuneration on a monthly basis.
Gross wage is an employee’s remuneration earned before any deductions are subtracted.
Hourly wage means an employee’s remuneration is based on the number of hours he or she has worked.
Idle time refers to the time an employee is at work but isn’t productive for various reasons.
Labour recovery rate is the cost an organisation incurs to employ an employee per hour.
Net wage is an employee’s remuneration earned after all deductions are made. A net wage is the amount of pay an employee takes home.
Overtime refers to additional hours worked, over and above the normal working hours, in order to meet deadlines.
Piece-work scheme is compensation for the work completed or the amount of units manufactured.
Wage incentive is the additional remuneration awarded to employees for accomplishing tasks before the allocated time, promoting higher productivity levels.
Test yourself solutions
Test yourself 4.1
Shreya: R9 p/h × 36 hours = Basic wage of R324 Ataria: R18 p/h × 16 units = Basic wage of R288
Test yourself 4.2
Table 4.8 Calculation of gross wages
Job No
X012
X013 X014
Employee responsible Time saved
Basic wage
Rowan premium
Stephanie Mbali
_T_W_ × TS × WR TA
_8__ × 2 × 11 _1_6_ × 4 × 15 _1_0_ × 5 × 17 10 20 15
Gross wage
= R17,60 = R105,60
= R48
= R288,00 50% × 4 × 15
= R56,67
= R226,67 50% × 5 × 17
Sharon
2 hours
R88 R240 R170
2 × 11
4 hours 5 hours
130
Test yourself 6.2
Ataria owns a small business that makes beaded jewellery and sells it at the local beachfront markets. In the month of December, Ataria got a big order from a retail store (who paid in cash) for beaded necklaces in keeping with the Christmas theme.
The detail of the order is presented below:
Beads used
Direct labour
Applied manufacturing overheads
R2 500 R560 R175 R3 235
Total cost of the job
Upon completion of the job, actual manufacturing overheads incurred was calculated at R150.
Required:
Prepare the journal entries to represent the flow of cost of the job.
Case study: Loadshedding, a major burden on business expenses
Government-owned electricity producer Eskom has recently declared its fourth power emergency. They introduced the loadshedding programme which caused retailers to close for that period, disturbing cellular systems and raising anxieties about the limitations being placed on South Africa’s already poor development and slow-growing economy.
Due to Eskom’s financial constraints, they are unable to negotiate and secure power supply contracts with independent power producers (IPPs). Therefore, Eskom urged consumers to reduce their electricity consumption by 10%. However, this reduction in use was inadequate to alleviate the problem and now the residential and commercial consumers have once again been experiencing loadshedding for periods of three hours at a time, sometimes longer.
Loadshedding is costing organisations across South Africa time and money. All types of businesses are being affected including hair salons, petrol stations, manufacturing facilities and restaurants – all are disappointed with the load– shedding programme as it forces them to close business or continue to work without electricity, since many small businesses cannot afford to purchase a generator. Businesses are losing thousands of rands a day, and some are forced to replace equipment due to the damage caused by frequent power cuts.
Cost and Management Accounting
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                                                                                                                                                                                                                                                                                                                                                                                           ment, is well recognised by many organisations. Today, management accountants have a
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