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Move-Quicker (Pty) Ltd (Move-Quicker) was established in 2018 by Ms Mogale after the taxi she was travelling in, broke down resulting in her missing an important job interview. Move-Quicker is based in Mamelodi, east of Pretoria. The company manufactures and sells quick moving vehicles called Sporter cars. The company has a 30 June year-end and uses the first-in first-out method of inventory valuation. Fixed manufacturing overheads (FMO) are allocated to production based on direct labour weeks worked.

Budgeted data for the year ended 30 June 2021 is as follows:

Total budgeted fixed overhead costs are R1 025 000. (These total budgeted fixed overheads are split between the manufacturing and administration departments in the ratio 8:2.) The company budgeted for 40 direct labour weeks to be worked in the 2021 financial year.

Actual information for the year ended 30 June 2021 relating to Sporter cars:

1. The selling price per vehicle was R250 000.

2. Direct material costs:

Each vehicle required all of the following direct material:

Ten metres of steel at R930 per metre;

Fifty kilograms of aluminium (at a cost price of R250 per kilogram); and

Other direct materials (copper, glass, rubber, fibers, etc) of which the total cost amounted to R23 200 per vehicle.

3. Labour costs:

The company employed highly skilled labour at the rate of R36 000 per week. 41 direct labour weeks were used to manufacture all the vehicles.

4. Total actual fixed overheads amounted to R993 750. (These total actual fixed overheads are split between the manufacturing and administration departments in the ratio 8:2.)

5. Vehicle production and inventory:

Details Vehicles

Production 20

Opening inventory 01 July 2020 6

Closing inventory 30 June 2021 4

6. The costs to manufacture each vehicle were R146 000 for the year ended 30 June 2020. These costs included absorbed fixed manufacturing overheads.

7. It is company policy to pay commission to sales personnel of R25 000 for each vehicle sold.

8. No inventory of direct materials or work-in-progress is held.

9. All completed cars are parked in the showroom and counted into inventories.

a) Calculate Move-Quickers total fixed manufacturing overhead over/under recovery amount for the financial year ended 30 June 2021 and prepare the related journal entry to be recorded in Move-Quickers financial records. (5)

(b) Prepare the actual income statement for Move-Quicker (Pty) Ltd for the year ended 30 June 2021 using the absorption costing system. (15)

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