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MAC3701: Application of Man-
agement Accounting Techniques
OCT/NOV Examination 2026 Preparation
Covering Past Papers: 2023 – 2025
⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆
Management Accounting — University of South Africa (UNISA)
Exam Revision Guide
MAC3701
Module Code:
Application of Management Accounting
Module Name: Techniques
OCT/NOV 2026 Prep (Covers 2023–2025)
Paper / Exam:
3 Hours
Duration:
100 Marks
Total Marks:
Oct/Nov 2023, Oct/Nov 2024, Oct/Nov
Papers Covered: 2025
Work through every question. Understand the reasoning, not just the answer.
Exam Revision Notes | MAC3701 | OCT/NOV 2026 Preparation
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
PART 1
OCT/NOV 2023 — Application of Management Accounting Techniques
100 Marks | 180 Minutes
The Oct/Nov 2023 paper tested one integrated scenario (a South African manufacturing com-
pany with two divisions) across the following topics: Direct and Absorption Costing,
Overhead Allocation (ABC), Standard Costing (Variances), Transfer Pricing, Rel-
evant Costing / Make-or-Buy, Optimum Production Mix, and Ethical/Social Mat-
ters.
Page 2 of 45 ⋆
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
Part A — Direct and Absorption Costing [20 marks]
Question: Bophelo Manufacturing (Pty) Ltd operates two divisions: Division Alpha
(a component manufacturer) and Division Beta (an assembler of finished goods). The
following information relates to Division Beta for the year ended 31 October 2023:
Production: 40 000 units Sales: 36 000 units Opening inventory: 2 000 units
Selling price per unit R250
Variable manufacturing cost per unit R80
Fixed manufacturing overhead (total) R1 200 000
Variable selling cost per unit R20
Fixed selling & admin cost (total) R400 000
(a) Prepare a Statement of Profit or Loss for Division Beta under direct (variable)
costing. [10]
(b) Prepare a Statement of Profit or Loss for Division Beta under absorption costing.
[6]
(c) Reconcile the profit figures and explain the difference. [4]
Answer:
Key Concept
Direct (Variable) Costing treats fixed manufacturing overhead (FMOH) as a period
cost – expensed immediately regardless of inventory levels. Absorption Costing
treats FMOH as a product cost – it follows units into inventory and is only expensed
when goods are sold.
(a) Direct Costing Income Statement [10 marks]
Step 1 — Calculate Fixed Manufacturing Overhead rate per unit (needed for
absorption only):
R1 200 000
Fixed OH rate = = R30 per unit
40 000 units
Step 2 — Units in opening inventory from prior period. Assume FIFO; opening
inventory carried at same variable cost per unit (R80).
Page 3 of 45 ⋆
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
Division Beta: Statement of Profit or Loss — Direct Costing R
Sales (36 000 × R250) 9 000 000
Variable Cost of Sales:
Opening inventory (2 000 × R80) 160 000
Variable manufacturing cost (40 000 × R80) 3 200 000
Less: Closing inventory (6 000 × R80) (480 000)
Variable cost of goods sold 2 880 000
Gross Contribution 6 120 000
Variable selling costs (36 000 × R20) (720 000)
Total Contribution 5 400 000
Fixed Costs:
Fixed manufacturing overhead (1 200 000)
Fixed selling & admin (400 000)
Net Profit (Direct Costing) R3 800 000
Closing inventory = 2 000 (opening) + 40 000 (produced) − 36 000 (sold) = 6 000 units.
(b) Absorption Costing Income Statement [6 marks]
Under absorption costing, FMOH is included in the unit cost.
Full production cost per unit = R80 + R30 = R110
Division Beta: Statement of Profit or Loss — Absorption Costing R
Sales (36 000 × R250) 9 000 000
Cost of Sales:
Opening inventory (2 000 × R110) 220 000
Production cost (40 000 × R110) 4 400 000
Less: Closing inventory (6 000 × R110) (660 000)
Cost of goods sold 3 960 000
Gross Profit 5 040 000
Operating Expenses:
Variable selling costs (36 000 × R20) (720 000)
Fixed selling & admin (400 000)
Net Profit (Absorption Costing) R3 920 000
Page 4 of 45 ⋆
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
(c) Reconciliation [4 marks]
Reconciliation Statement R
Net profit — Absorption Costing 3 920 000
Less: FMOH in closing inventory (6 000 × R30) (180 000)
Add: FMOH in opening inventory (2 000 × R30) 60 000
Net Profit — Direct Costing R3 800 000
Explanation: Production (40 000 units) exceeded sales (36 000 units), so inventory increased
by 4 000 units. Under absorption costing, R30 of FMOH is deferred in each unsold unit (net
4 000 × R30 = R120 000 more profit). Under direct costing, the full R1 200 000 FMOH is
charged immediately, regardless of inventory movement.
Exam Tip
When production > sales: absorption profit > direct costing profit. When production
< sales: direct costing profit > absorption profit. When production = sales: profits are
equal.
Page 5 of 45 ⋆
, MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
Part B — Activity-Based Costing and Overhead Allocation [18 marks]
Question: Division Alpha allocates manufacturing overhead using a traditional volume-
based system (direct labour hours). Management is considering switching to Activity-
Based Costing (ABC). The following overhead and activity data is provided for the year
ended 31 October 2023:
Activity Pool Cost (R) Cost Driver Total Driver Units
Machine set-ups 480 000 Number of set-ups 120
Material handling 360 000 Kg of material moved 90 000 kg
Quality inspection 240 000 Number of inspections 80
General overhead 220 000 Direct labour hours 44 000 hrs
Two products are manufactured: Product X and Product Y.
Product X Product Y
Units produced 8 000 4 000
Direct labour hours per unit 2 hrs 3 hrs
Set-ups 40 80
Material moved (kg) 30 000 60 000
Inspections 30 50
(a) Calculate the overhead cost allocated to each unit of Product X and Product Y under
ABC. [12]
(b) Calculate the overhead rate per direct labour hour under the traditional system and
compare it to ABC. [4]
(c) Identify two limitations of the traditional volume-based system. [2]
Answer:
(a) ABC Allocation [12 marks]
Step 1 — Calculate the cost driver rate for each pool:
Activity Cost (R) Driver Total Rate
Machine set-ups 480 000 120 set-ups R4 000/set-up
Material handling 360 000 90 000 kg R4.00/kg
Quality inspection 240 000 80 inspections R3 000/inspection
General overhead 220 000 44 000 hrs R5.00/DLH
Page 6 of 45 ⋆
]]
⋆ ⋆
MAC3701: Application of Man-
agement Accounting Techniques
OCT/NOV Examination 2026 Preparation
Covering Past Papers: 2023 – 2025
⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆
Management Accounting — University of South Africa (UNISA)
Exam Revision Guide
MAC3701
Module Code:
Application of Management Accounting
Module Name: Techniques
OCT/NOV 2026 Prep (Covers 2023–2025)
Paper / Exam:
3 Hours
Duration:
100 Marks
Total Marks:
Oct/Nov 2023, Oct/Nov 2024, Oct/Nov
Papers Covered: 2025
Work through every question. Understand the reasoning, not just the answer.
Exam Revision Notes | MAC3701 | OCT/NOV 2026 Preparation
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
PART 1
OCT/NOV 2023 — Application of Management Accounting Techniques
100 Marks | 180 Minutes
The Oct/Nov 2023 paper tested one integrated scenario (a South African manufacturing com-
pany with two divisions) across the following topics: Direct and Absorption Costing,
Overhead Allocation (ABC), Standard Costing (Variances), Transfer Pricing, Rel-
evant Costing / Make-or-Buy, Optimum Production Mix, and Ethical/Social Mat-
ters.
Page 2 of 45 ⋆
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
Part A — Direct and Absorption Costing [20 marks]
Question: Bophelo Manufacturing (Pty) Ltd operates two divisions: Division Alpha
(a component manufacturer) and Division Beta (an assembler of finished goods). The
following information relates to Division Beta for the year ended 31 October 2023:
Production: 40 000 units Sales: 36 000 units Opening inventory: 2 000 units
Selling price per unit R250
Variable manufacturing cost per unit R80
Fixed manufacturing overhead (total) R1 200 000
Variable selling cost per unit R20
Fixed selling & admin cost (total) R400 000
(a) Prepare a Statement of Profit or Loss for Division Beta under direct (variable)
costing. [10]
(b) Prepare a Statement of Profit or Loss for Division Beta under absorption costing.
[6]
(c) Reconcile the profit figures and explain the difference. [4]
Answer:
Key Concept
Direct (Variable) Costing treats fixed manufacturing overhead (FMOH) as a period
cost – expensed immediately regardless of inventory levels. Absorption Costing
treats FMOH as a product cost – it follows units into inventory and is only expensed
when goods are sold.
(a) Direct Costing Income Statement [10 marks]
Step 1 — Calculate Fixed Manufacturing Overhead rate per unit (needed for
absorption only):
R1 200 000
Fixed OH rate = = R30 per unit
40 000 units
Step 2 — Units in opening inventory from prior period. Assume FIFO; opening
inventory carried at same variable cost per unit (R80).
Page 3 of 45 ⋆
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
Division Beta: Statement of Profit or Loss — Direct Costing R
Sales (36 000 × R250) 9 000 000
Variable Cost of Sales:
Opening inventory (2 000 × R80) 160 000
Variable manufacturing cost (40 000 × R80) 3 200 000
Less: Closing inventory (6 000 × R80) (480 000)
Variable cost of goods sold 2 880 000
Gross Contribution 6 120 000
Variable selling costs (36 000 × R20) (720 000)
Total Contribution 5 400 000
Fixed Costs:
Fixed manufacturing overhead (1 200 000)
Fixed selling & admin (400 000)
Net Profit (Direct Costing) R3 800 000
Closing inventory = 2 000 (opening) + 40 000 (produced) − 36 000 (sold) = 6 000 units.
(b) Absorption Costing Income Statement [6 marks]
Under absorption costing, FMOH is included in the unit cost.
Full production cost per unit = R80 + R30 = R110
Division Beta: Statement of Profit or Loss — Absorption Costing R
Sales (36 000 × R250) 9 000 000
Cost of Sales:
Opening inventory (2 000 × R110) 220 000
Production cost (40 000 × R110) 4 400 000
Less: Closing inventory (6 000 × R110) (660 000)
Cost of goods sold 3 960 000
Gross Profit 5 040 000
Operating Expenses:
Variable selling costs (36 000 × R20) (720 000)
Fixed selling & admin (400 000)
Net Profit (Absorption Costing) R3 920 000
Page 4 of 45 ⋆
,MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
(c) Reconciliation [4 marks]
Reconciliation Statement R
Net profit — Absorption Costing 3 920 000
Less: FMOH in closing inventory (6 000 × R30) (180 000)
Add: FMOH in opening inventory (2 000 × R30) 60 000
Net Profit — Direct Costing R3 800 000
Explanation: Production (40 000 units) exceeded sales (36 000 units), so inventory increased
by 4 000 units. Under absorption costing, R30 of FMOH is deferred in each unsold unit (net
4 000 × R30 = R120 000 more profit). Under direct costing, the full R1 200 000 FMOH is
charged immediately, regardless of inventory movement.
Exam Tip
When production > sales: absorption profit > direct costing profit. When production
< sales: direct costing profit > absorption profit. When production = sales: profits are
equal.
Page 5 of 45 ⋆
, MAC3701 | Exam Revision 2023–2025 Application of Management Accounting Techniques
Part B — Activity-Based Costing and Overhead Allocation [18 marks]
Question: Division Alpha allocates manufacturing overhead using a traditional volume-
based system (direct labour hours). Management is considering switching to Activity-
Based Costing (ABC). The following overhead and activity data is provided for the year
ended 31 October 2023:
Activity Pool Cost (R) Cost Driver Total Driver Units
Machine set-ups 480 000 Number of set-ups 120
Material handling 360 000 Kg of material moved 90 000 kg
Quality inspection 240 000 Number of inspections 80
General overhead 220 000 Direct labour hours 44 000 hrs
Two products are manufactured: Product X and Product Y.
Product X Product Y
Units produced 8 000 4 000
Direct labour hours per unit 2 hrs 3 hrs
Set-ups 40 80
Material moved (kg) 30 000 60 000
Inspections 30 50
(a) Calculate the overhead cost allocated to each unit of Product X and Product Y under
ABC. [12]
(b) Calculate the overhead rate per direct labour hour under the traditional system and
compare it to ABC. [4]
(c) Identify two limitations of the traditional volume-based system. [2]
Answer:
(a) ABC Allocation [12 marks]
Step 1 — Calculate the cost driver rate for each pool:
Activity Cost (R) Driver Total Rate
Machine set-ups 480 000 120 set-ups R4 000/set-up
Material handling 360 000 90 000 kg R4.00/kg
Quality inspection 240 000 80 inspections R3 000/inspection
General overhead 220 000 44 000 hrs R5.00/DLH
Page 6 of 45 ⋆
