Spin Limited manufactures tennis strings for various racquet manufacturers, made specifically to order. The company uses a predetermined overhead rate based on material costs. The budgeted manufacturing overheads for the year were R1 500 000 and the budgeted material costs were R500 000. During October 2021, Spin Limited worked on the following orders for the manufacturers: Cost Item Job Nadal Ltd Fed Ltd Novak Ltd Direct material used R200 000 R350 000 R550 000 Direct labour cost R450 000 R515 000 R720 000 Machine hours 600 750 800 At the end of October 2021, the job for Fed Ltd was completed and invoiced at a mark‐up of 50% on cost. The jobs for Nadal Ltd and Novak Ltd were completed but not yet invoiced. The actual overheads incurred during October 2021 were R3 500 000. 22 2022 REQUIRED: Q.7.1 Determine the amount of overheads that should be absorbed by each job. Q.7.2 What is the normal cost of goods sold and the value of closing inventory? Q.7.3 Calculate whether overheads have been under/over applied for October 2021.
Spin Limited manufactures tennis strings for various racquet manufacturers, made specifically to
order. The company uses a predetermined overhead rate based on material costs. The budgeted
manufacturing
R500 000. During October 2021, Spin Limited worked on the following orders for the
manufacturers:
Cost Item Job
Nadal Ltd Fed Ltd Novak Ltd
Direct material used R200 000 R350 000 R550 000
Direct labour cost R450 000 R515 000 R720 000
Machine hours 600 750 800
At the end of October 2021, the job for Fed Ltd was completed and invoiced at a mark‐up of 50%
on cost. The jobs for Nadal Ltd and Novak Ltd were completed but not yet invoiced. The actual
overheads incurred during October 2021 were R3 500 000.
22 2022
REQUIRED:
Q.7.1 Determine the amount of overheads that should be absorbed by each job.
Q.7.2 What is the normal cost of goods sold and the value of closing inventory?
Q.7.3 Calculate whether overheads have been under/over applied for October 2021.
Q.7.4 Calculate the gross profit that Spin Limited would have earned for October
2021.
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