Management
Accounting &
Control Systems
(MACS)
ICB ASSIGNMENT 3
QUESTION PAPER
APR 2022 TO MAR 2023
THIS PAPER CONSISTS OF 1 ASSIGNMENT
ASSIGNMENT 3: 6 QUESTIONS
INSTRUCTIONS:
1. ICB Assignments form part of the formative mark and are to be completed in an open book environment.
2. This Question Paper Book contains all the questions for Assignment 3.
3. All questions are to be completed in the Assignment Answer Book provided in your Portfolio of Evidence (PoE).
4. Check that you have the correct number of pages.
5. Please be neat, as illegible handwriting cannot be marked. You must write in blue or black ink. In practice, it is
unacceptable for Bookkeepers to use correcting fluid (Tipp-ex). Marks will be deducted for the use of correction fluid.
6. All questions must be completed.
7. This question paper must NOT be returned to the ICB. You must retain this Assignment Question Paper Book
8. Upon completion of your Assignment, remember to submit (upload) your Assignment Answer Book.
MACS-ICBASG3–QP-2022.v1 Page 1 of 8
MANAGEMENT ACCOUNTING & CONTROL SYSTEMS (MACS)
ICB ASSIGNMENT 3 QUESTION PAPER - APR 2022 TO MAR 2023
ASSIGNMENT 3
QUESTION 1 SHORT QUESTIONS
PART A
1. The management of Ace Manufacturing (Pty) Ltd has presented you with the following information:
R
Fixed costs 250 000
Variable cost per unit 80.00
Selling price per unit 125.00
Calculate how many units need to be sold to achieve a profit of R 137 000.
2. You are provided with the following extracts from Heart (Pty) Ltd’s records for the month:
The standard direct material cost is R 360 per unit
The actual direct material cost incurred was R 185 700
The direct materials price variance was R 37 500 adverse
The direct materials usage variance was R 24 600 favourable
Calculate the actual production for the month.
3. The following information has been provided about the lowest and highest levels of output and the resulting
change in maintenance costs:
Activity Units Cost (R)
Lowest output 6 800 56 700
Highest output 8 400 67 100
Calculate the variable cost per unit and the fixed cost using the high-low method.
MACS-ICBASG3–QP-2022.v1 Page 2 of 8
MANAGEMENT ACCOUNTING & CONTROL SYSTEMS (MACS)
ICB ASSIGNMENT 3 QUESTION PAPER - APR 2022 TO MAR 2023
PART B
Match the terms in COLUMN A with the most appropriate description in COLUMN B. Write down only the letter of
your choice next to the corresponding number. For example: 1. A
2. B
COLUMN A COLUMN B
1. Ideal standards A The objective is to identify the sales mix that will achieve the greatest profit
A mathematical method used to find the optimal solution in allocating limited
2. Coefficient of determination B
resources
3. Avoidable costs C Exhibits an element of risk or uncertainty
4. Learning curve theory D Consists of decision nodes, chance nodes and end nodes
5. Margin of safety in units E Net income less interest on capital
6. Unit contribution ratio F Seeks to minimise the maximum regret from making the wrong decision
7. Imperfect information G Sum of the weighted values associated with a decision
Measures the percentage variation in the dependent variable that is explained by
8. ABC costing H
variations in the independent variable
The maximum cost that can be incurred on a product for a company to earn the
9. Multi-product break-even analysis I
required profit margin at a given selling price
10. Standard costing J The benefit or value that must be forfeited in order to choose a particular alternative
11. Opportunity costs K Budgeted sales volume less the break-even sales volume
12. Minimax criteria L Costs that will not be incurred if a particular alternative is not taken
Allows management to control the quantities used in production and sales as well as
13. Linear programming M
the prices paid for inputs
14. Expected value N Assumes that favourable conditions will persist indefinitely
15. Residual income O Designed to start from scratch each year
The purchase of an asset is considered to be an investment in capital, earning
16. Zero-based budgeting P
interest at a certain rate
17. Target cost Q Has a greater number and variety of cost centres
18. Decision tree R Net profit divided by invested capital
Based on the premise that when a new process commences for the first time, the
19. ROI S
efficiency of the labour force will increase as the number of units produced increases
20. Annuity depreciation T Contribution margin per unit divided by the selling price per unit
MACS-ICBASG3–QP-2022.v1 Page 3 of 8
MANAGEMENT ACCOUNTING & CONTROL SYSTEMS (MACS)
ICB ASSIGNMENT 3 QUESTION PAPER - APR 2022 TO MAR 2023
QUESTION 2 CVP ANALYSIS AND RELEVANT COSTS
This question comprises of two separate parts.
PART A
You are provided with the following budgeted information:
Value
Fixed costs (total) R 140 000
Selling price per unit R 18.00
Variable cost per unit R 11.00
Budgeted sales (units) 25 000
Required:
Calculate the following values:
1. Break-even point (units)
2. Break-even point (Rands)
3. Margin of safety percentage.
Show your workings.
PART B
Techno Ltd produces a component used in the production of one of the company’s main products. The costs are
budgeted as follows:
R R for
per unit 10 000 units
Materials 9.00 90 000
Labour 18.00 180 000
Variable overhead 12.00 120 000
Depreciation 8.00 80 000
Allocated general overheads 21.00 210 000
Total 68.00 680 000
The components can be purchased from an outside supplier at a cost of R 45 per unit.
Required:
Determine whether the company should make or buy the component.
MACS-ICBASG3–QP-2022.v1 Page 4 of 8
MANAGEMENT ACCOUNTING & CONTROL SYSTEMS (MACS)
ICB ASSIGNMENT 3 QUESTION PAPER - APR 2022 TO MAR 2023
QUESTION 3 DECISIONS UNDER CONDITIONS OF UNCERTAINTY
A company is considering whether to develop, manufacture and sell a particular product. There is a 70 % chance
that research and development will come up with a viable product, and a 30 % chance that the product will be
scrapped. The cost of undertaking research and development is R 250 000.
If the product development is successful, the company will build a manufacturing facility. The product demand is
unknown at present and the company has the option to build either a big or a small manufacturing facility. The
expected demand and net present value are as follows:
High demand Low demand
Plant size
60 % 40 %
Large 2 300 000 1 200 000
Small 1 400 000 720 000
Required:
Draw a decision tree based on the information above and determine whether the company should manufacture
the product or not.
MACS-ICBASG3–QP-2022.v1 Page 5 of 8
MANAGEMENT ACCOUNTING & CONTROL SYSTEMS (MACS)
ICB ASSIGNMENT 3 QUESTION PAPER - APR 2022 TO MAR 2023
QUESTION 4 TRANSFER PRICING
Cyber (Pty) Ltd and Data (Pty) ltd are wholly owned subsidiaries of Fibre Ltd.
Data produces a material which can be converted into a wide range of final products. It sells 60 % of its output to
Cyber and the remaining 40 % to external customers. Data’s production capacity is 300 000 metres per month,
but owing to strong competition, it budgets to sell 240 000 metres of material per month. Its variable costs are
R 0.35 per metre, and its fixed costs are R 30 000 per month.
Cyber produces its final product, a widget, at a selling price of R 7.50 per unit. Product costs per widget are as
follows:
R
Raw materials - materials from Data - 2.5 metres per unit 3.00
Other variable costs 1.50
4.50
Fixed costs of R 25 000 are incurred per month.
A study indicated that if Cyber reduces its selling price by 20 %, it could increase its sales volume by 40%.
The group's current policy is to use market prices as the transfer price between subsidiaries.
Required:
4.1. Calculate the monthly profit position of Cyber and Data if the sales of Cyber are maintained at the present
level.
4.2. Calculate the monthly profit position of Cyber and Data if the sales of Cyber are at a higher sales level.
4.3. Comment on the use of the market price as the transfer price.
4.4. Recommend an appropriate transfer price.
MACS-ICBASG3–QP-2022.v1 Page 6 of 8
MANAGEMENT ACCOUNTING & CONTROL SYSTEMS (MACS)
ICB ASSIGNMENT 3 QUESTION PAPER - APR 2022 TO MAR 2023
QUESTION 5 BUDGETS AND FORECASTING
Gizmo (Pty) Ltd manufactures and sells two products - Product A and Product B. The management wishes to
prepare the budget for quarter 2 ending 30 June, which comprises of 13 weeks. The following information has
been provided to prepare the budget for quarter 2:
Marketing and production data:
Product A Product B
Forecasted sales - Quarter 2 (units) 4 500 5 600
Direct materials per unit (kgs) 25.00 30.00
Direct labour per unit (hours) 30.00 20.00
480 employees work a 40 hour, 5 days a week and are paid R 25.00 per hour. Overtime is payable at a premium
of 50%. Owing to recent machinery installation, employees are only expected to work at 85% efficiency.
Raw materials are expected to cost R 30.00 per kg.
Estimated inventory levels at the start of the budget period are expected to be:
On hand at beginning of
budget period
Raw materials (kgs) 37 000
Product A (units) 800
Product B (units) 1 200
Budgeted closing inventories are to be estimated as follows:
• there should be sufficient raw material inventories on hand to meet 10 days’ production;
• inventory levels of product A should be the equivalent to 14 days’ sales volume;
• inventory levels of product B should be the equivalent to 12 days’ sales volume.
Required:
Prepare or calculate the following for the second quarter ending 30 June:
5.1. Production budget.
5.2. Material purchases budget.
5.3. Rand value (cost) of material purchases.
5.4. Labour budget.
5.5. Rand value (cost) of labour.
Round off all amounts to the nearest whole number.
MACS-ICBASG3–QP-2022.v1 Page 7 of 8
MANAGEMENT ACCOUNTING & CONTROL SYSTEMS (MACS)
ICB ASSIGNMENT 3 QUESTION PAPER - APR 2022 TO MAR 2023
QUESTION 6 PERFORMANCE ANALYSIS
The Clothing division has a budgeted net profit before tax of R 3 600 000 per annum based on net capital
employed of R 12 000 000. The division's cost of capital is 18 % before tax. The target return on capital
employed is 30 %.
The management of Clothing is considering the expansion of its facility in order to cope with the forecasted
demand from a new customer. The customer is prepared to offer a 5-year contract providing Clothing with
annual sales of R 2 210 000.
To meet the contract, a total capital outlay of R 1 140 000 is expected, comprising of R 900 000 for the new
machinery plus R 240 000 for working capital. The machinery is expected to have a useful life of 5 years.
Operating costs are expected to be R 1 690 000 per annum, excluding depreciation.
Required:
6.1. Calculate the impact of accepting the contract with the customer on divisional return on capital employed
and residual income. Decide whether the contract should be accepted.
6.2. Repeat the calculation in (6.1) assuming that the annuity depreciation method is used on the newly
acquired machinery. You are provided with the following information:
Input name (Excel) Detail of input Input value
Rate Cost of capital 18 %
Nper Number of payments 5
Pv Present value (initial outlay) R 900 000
Fv Future value -
PMT Annual repayment in arrears R 287 800
MACS-ICBASG3–QP-2022.v1 Page 8 of 8
