You are the manager of Compounders Ltd. The company mixes compound for smaller p

Question

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 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)

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)

1.3 Calculate the contribution per ton produced. (2)

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

Explanation / Answer

Capacity 75% * 250 1125 Tons Cost incurred Production cost Period cost Material Electrolyte 187.5 * 6 *.7 * 60 47250 Copper wire 187.5 *6 * .3 * 95 32062.5 79312.5 Import cost Electrolyte 4*1000 4000 Copper wire 3 * 1500 4500 8500 Total Wages 2 * 6 * 9 * 75 *20days 162000 Foman salaries 15000 Security cost 3500 3750 Monthly rentals 17500 7500 Office expense 4000 Delivery expense 10800 Total cost 285812.5 26050 Total tons of mixture 1125 Mixture cost per ton 254.06 Mark up 50% 127.02 Selling price 381.08 2 Variable cost Fixed cost Material 87812.5 Wages 162000 Foreman salaries 15000 Security cost 7250 Monthly rentals 25000 Office expense 4000 Delivery expense 10800 Total 260612.5 51250 Total tons of mixture 1125 Variable cost per ton 231.66 3 Selling price per ton 381.08 Variable cost per ton 231.66 Contribution per ton 149.42 4 Breakeven point = Fixed cost / contribution per ton Break even in units = 51250 / 149.42 343 Tons

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