Reference no: EM132693549
Question - Getaway (Pty) Ltd manufactures rubber balls. The following costs were incurred during August 2019:
Rubber R10 per kg
Factory worker R30 per hour
Rental of building R16 000 per month
Electricity R9 700 per month
Depreciation on factory machinery R3 300 per month
Production manager salary R21 500 per month
Sales commission 2.5% on sales value
Sales price R20 per ball
Additional information:
0.5 kg rubber is needed to manufacture one ball.
One factory worker is employed and paid on a per hour basis.
The factory worker can manufacture 60 balls, in total, in an hour.
75% of the building is used as a factory and the rest of the building is used as offices.
Electricity is a mixed cost. The total fixed cost was determined as R1 200 per month.The total fixed cost and 70% of the variable cost will be allocated to the factory.
Finished goods inventory on 1 August (valued at R10 per ball, using the absorption costing method, including fixed manufacturing overhead of R4 per ball) was 3 000 balls.
Finished goods inventory on 31 August was 2 000 balls.
Actual production during August amounted to 9 600 balls.
The company uses the FIFO method to value inventory.
Fixed manufacturing overhead is recovered on the basis of units produced.
The company closes the over- or under applied overhead directly to cost of goods sold.
The budget for 2019 reflected the following:
Production, 115 200 balls
Fixed manufacturing overheads, R527 400
Required -
1. Calculate the manufacturing cost per ball using the absorption costing method.
2. Prepare the income statement for August 2014 using the absorption costing method.
3. Prepare the income statement for August 2014 using the direct costing method.