Question

Question 1: 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 R120 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:(R)

1.3 Calculate the contribution per ton produced. (2)

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

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.

Capacity	250*75%*6 Machine	1125
Per Machine	250*75%	187.5
			Production Cost	Period Cost
1.1	Material:
	-Electrolyte	187.5*6*0.7*60	47250
	-Copper Wire	187.5*6*0.3*95	32062.5
	Import Cost:
	-Electrolyte	1000/250*787.5	3150
	-Copper Wire	1500/120*337.5	4218.75
	Total Wages	2*9*6*75*20	162000
	Foreman Salary			15000
	Security Cost		3500	3750
	Rental	25000 into 9100:3900	17500	7500
	Office Expense		64000
	Delivery Cost	1200/125*1125	10800
			344481.25	26250
	Total Tons of Mixture		1125
	Cost Per Ton	344481.25/1125	306.21
	Add: Mark Up 50%		153.10
	Selling Price	306.21+153.10	459.31
1.2			Variable Cost	Fixed Cost
	-Electrolyte		47250
	-Copper Wire		32062.5
	Import Cost:
	-Electrolyte		3150
	-Copper Wire		4218.75
	Total Wages		162000
	Foreman Salary			15000
	Security Cost			7250
	Rental			25000
	Office Expense			64000
	Delivery Cost		10800
	Total		259481.25	111250
	Total Tons of Mixture		1125
	Variable Cost Per Ton	259481.25/1125	230.65
1.3
	Selling Price	459.31
	Less: Variable Cost	230.65
	Contribution per ton	228.66
1.4	Breakeven Point=	Fixed Cost/Contribution Per ton
		111250/228.66
		486.53