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The company produces and sells bread called Isinkwa

Accounting

The company produces and sells bread called Isinkwa. The company has a 30 September year-end and uses an absorption costing system Budgeted data for the year ended 30 September 2021 is as follows: Total budgeted fixed manufacturing overhead costs are R65 093. Fixed manufacturing overheads (FMO) are absorbed based on normal capacity of 11 900 direct labour hours per year FMO are allocated to production based on direct labour hours worked. Actual information for the year ended 30 September 2021 relating to Isinkwa: 1. The selling price per loaf of bread is R20 2 Direct material costs Loaves of bread ("breads" or "units") are produced in batches of 48 and require the following direct materials and variable manufacturing overheads (VMO) • Fifty kilograms of flour per batch at R5 per kilogram, and Other direct materials and VMO (yeast, sugar, salt, oil, water, electricity, etc) of which the total cost amounts to R50 per batch of 48 breads 3 Direct labour costs: The Bakery has employed five (5) direct labour employees at the rate of R25 per hour. Each of these employees works eight (8) hours per day and worked 310 days in the current financial year 4. Actual total fixed manufacturing overheads amount to R60 750 5. Breads inventory information Units Product costs Production 57 600 ? Opening inventory-01 October 2020 475 R5 035 Closing Inventory - 30 September 2021 380 am to R60 750. 5. Breads inventory Information: Units Production Opening inventory - 01 October 2020 Closing inventory - 30 September 2021 Product costs ? R5 035 ? 57 600 475 380 - - 6. Assume that the Bakery has no spoilage as they follow a strict standard procedure to bake and they have back-up electrical supply in case of load shedding 7. The Bakery pays one salesperson R6 000 per month and two drivers R4 500 per month each other actual total fixed selling and distribution costs in addition to these salaries) amount to R40 400 for the year. 8. The company uses the first in first-out (FIFO) method of inventory valuation 9. Assume that the Bakery kept no inventory of direct materials and work-in- progress 10. All baked breads are sold at the counter or delivered to local shops and counted into inventories REQUIRED Marks (a) (5) Calculate the Bakery's total fixed manufacturing overheads over/under recovery amount for the financial year ended 30 September 2021 and prepare the related journal entry to be recorded in the Bakery's financial records Mention three possible causes of over/under applied overheads (b) (3) (c) Prepare the actual income statement of the Bakery for the year ended 30 September 2021 (17) TOTAL 25

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