Question

Question 1 30 marks

You are the manager of Compounders Ltd. The company mixes compound for smaller plastic extrusion companies. Compounders Ltd has six (6) mixing machines with a maximum capacity (100%) of 250 ton per machine. However, due to power cuts, the machines are currently being operated at 75% of installed capacity. One (1) ton of a compound mixture consists of two (2) raw materials: 0.7 ton of Electrolyte and 0.3 ton of Copper Wire. Assume no wastage. There are no opening and closing inventories. All raw materials purchased are being used in the month of purchase, and all compound mixed are being sold in the month mixed. Each mixing machine requires two (2) operators. The company is operating a nine (9) hour shift and each machine operator earns R75 per hour. No weekend time nor overtime is allowed. The company is a price setter and the pricing policy is based on a mark-up of the total production cost at 50%.

The company incurred the following costs for the month:

1. Import (purchase) raw material for one month’s production. Material Electrolyte @ R60 per ton and Copper Wire @ R95 per ton.

2. The import cost amount to R1,000 per 250 ton of Material Electrolyte and R1,500 per 120 ton of Copper wire.

3. Paid the wages based on a twenty (20) working days.

4. The factory foreman earns a salary of R15,000 per month.

5. The cost of security is as follows: Guard at the entrance of the factory R3,500 per month and the guard at the entrance to the admin offices R3,750 per month.

6. The monthly rental amounts to R25,000. Rent is allocated based on floor space occupied. The factory occupies 9,100 ??2 and the office block 3,900 ??2.

7. Office expenses amounts to R64,000 per month.

8. Compound delivery cost amount to R1,200 per 125 ton of compound delivered.

Required: 1.1 Calculate the selling price per ton of the compound mixture. Use the following table in your workings as marks will also be awarded for individual calculations. (Max 20 marks)

No

Cost incurred

Production Cost R

Period Cost R

1.2 Calculate the variable cost per ton of the compound mixture and the total fixed cost. Use the following table in your workings as marks will also be awarded for individual calculations. (6)

No

Cost incurred

Variable R

Fixed Cost

1.3 Calculate the contribution per ton produced. (2)

1.4 Calculate the break-even tons to be mixed (2)

Answer 1

Electrolyte	3937.5
Copper	2531.25
Import Cost	1546.88	(E4/250)*1000+(E4/120)*1500
Wages	162000	(9*12*75*20)
Salary	15000
Guard	3500
Rent	17500	(25000/13000)*9100
Delivery Cost	900	(1125/125)*1200/12
Total	206915.6
Margin	103457.8
Selling Price	310373.4

Tonnes Per Machine 250

Capicity 75% = 250*75% = 187.5 Tonnes Per Machine

Number of Machines = 6

Total Tonnes = 187.5*6 = 1125 Tonnes

Operators = 2 Per Machine

Total Operators = 2*6 = 12

Number of Hours = 12*9 = 108 Hours

Wages Per Hour = 75

Wages per day = 75*108 = 8100 Per day