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 month. 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 costs 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)
Current production = 250 ton *75% = 187.50ton
1 ton requires - .7 ton of electrolyte & .3 ton of copper wire
Hence, quantity of electrolyte required = 187.50*.7 =131.25 ton
Purchase cost of electrolyte = 131.25*60 = R7875
Import cost of electrolyte = 1000/250*131.25 = R525
Quantity of copper wire required = 56.25 ton
Purchase cost f copper wire = R5344
Import cost of copper wire = 1500/120*56.25 = R703
Operator costs = 6*2*9*75*20 = R162000
Hence, total Prodcution costs = R(7875+525+5344+703) = R14447
Factory foreman salary = R15000
Cost of security guard = R 7250
Rent = 25000*9100/13000= R17500
Office expenses = R64000
Delivery costs = 1200/125*187.50= R1800
Hence total costs = R281997
Hence the price = R422996
Hence price per ton = R2256 per ton
Note: The question has been sold assuming that the total production capacity of all 6 machines are 250ton @100% capacity.
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