Accounting 2B

Assignment 1
Dear Student,
Find Assignment 1 on the following page. Please note the following:
The assignment must be attempted in writing so that you will be able to answer
questions on Ulink based on this assignment. You have the whole weekend to
prepare the solution during which time you may also consult with your tutors or
peers for assistance with areas of the assignment that you may struggle with.
The multiple choice questions will be available on uLink on Monday 31 from
06:00 to 23:59.
Answering the multiple choice question on uLink will constitute a “hand-in” of the
assignment. No other submissions will be required or accepted for this specific
assignment.
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that you will have ONLY 30 minutes to capture your answers. If you exceed 30
minutes, the system will shut you out and it will be captured as a non-submission.
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assignment, e-mail your lecturers a screen shot of the error message.
Without such a screen shot, no “issues / problems” will be entertained.
This assignment was carefully selected to assist you in learning key concepts
necessary in ACC 2B. It will count toward the calculation of your semester mark.
Good luck!
ASSIGNMENT 1 - ACC 2B (2023) (25 MARKS)
(30 MINUTES)

Millenia Ltd (“Millenia”) manufactures vegan leather hand bags which has been voted South Africa’s
trendiest bags by Pearl Dhusi, one of South Africa’s top fashion influencers for 2021. Millenia has a 31
December reporting date. Millenia has one designer hand bag called the “Chunky button” handbag and
details of the bag is the following:

The “Chunky button”

The chunky button is a stylish hand bag and requires vegan leather and buttons as raw materials.

Vegan leather
Vegan leather is imported from Italy. An order was placed for 10 000 metres of vegan leather on 1 March
2021. The vegan leather was shipped on 15 April 2021 to South Africa and it was agreed with the
supplier that all risks of ownership would be transferred on this date. The vegan leather arrived on 10
May 2021 in South Africa and was received at Millenia’s manufacturing factory on 15 May 2021.

The following relates to the cost of the purchased vegan leather:

Invoice cost: €500 000 (Euros)

Freightage: R205 000
VAT at 15%: R1 500 000
Finance cost on loan: R335 000
Transportation of purchases: R120 000

The following prevailing spot rates relate:

Date Rand : Euro

(Prevailing Spot Rate)
1st March 2021 17.40 : 1
15th April 2021 20.35 : 1
10th May 2021 19.80 : 1
15th May 2021 20.10 : 1

Buttons
The buttons are manufactured in South Africa as Millenia tries to support proudly South African
companies. Millenia received two batches of buttons from the South African supplier. The first batch
contained 10 000 buttons and was received on 4 March 2021 with an invoice cost of R40 250 (Including
VAT). The second batch contained 7 500 buttons and was received on 4 September 2021 with an
invoice cost of R35 218.75 (Including VAT). The supplier offers a 20% trade discount if payment is made
within 30 days after date of invoicing. Millenia paid both invoices 15 days after the invoice date.

The following information is applicable to the production of one Chunky button Bag:

Cost
Vegan leather: (one metre) ?
Buttons: (four buttons) ?
Direct labour: (two hours) R300 per hour
Variable overheads R400 per unit
Fixed overheads See Note 1 below
ASSIGNMENT 1 - ACC 2B (2022) (CONTINUED)

ADDITIONAL INFORMATION:

1. Fixed overhead costs for the financial year amounted to R1 790 000.

2. Units on hand:

Description 1 January 2021 31 December 2021

(Opening Stock) (Closing Stock)
Vegan leather Nil 2 000 metres
Buttons Nil 2 000 buttons
Finished goods Nil 50 handbags

3. Millenia Ltd uses a highly advanced machine to manufacture its designer hand bags. This machine
was acquired on the 1st of January 2021 for R8 000 000. It was estimated at the beginning of the
year that the machine would produce 100 000 units before it would be replaced. It is the policy of
Millenia to base depreciation on the number of units manufactured.

4. Actual production for the year was 3 000 bags lower than normal production. Normal capacity for
the year was 5 000 Bags.

5. Power cuts affected Millenia negatively as an additional 500 direct labour hours was required to
complete production this year. The power cuts were a result of power cable theft and are not
regarded as a normal occurrence for Millenia.

6. On 30 December 2021 a competitor introduced a similar bag to the “Chunky button” and in order to
remain competitive, Millenia dropped their selling price to R2 700 per bag

7. Delivery of the Chunky button hand bags to customers costs R130 per bag.

8. Sales agents receive 10% of the selling price per bag as sales commission.

9. Inventories are valued at the lower of cost or estimated net realisable value. The cost of finished
goods is determined on a FIFO Basis. The cost of the buttons is determined on a weighted
average basis.

10. The value added tax (VAT) rate is 15%.

11. All amounts exclude VAT unless otherwise stated.

REQUIRED:

a) Calculate the cost per metre of the vegan leather used in the production of one Chunky button
bag. (4)

b) Calculate the cost of the buttons used in the production of one Chunky button bag. (4)

c) Calculate the cost per unit of the finished goods as at 31 December 2021. (6)

d) Present cost of sales as it would appear in the Statement of Profit or Loss and Other
Comprehensive Income of Millenia Ltd for the year ended 31 December 2021.
In addition, as part of your answer, please provide the composition of cost of sales. (11)
Note:
Show all calculations clearly
Round off to the nearest Rand
Comparative figures are not required.