Question 1: (30 marks) You are the manager of Compounders Ltd. The company mixes

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 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)

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)

No Cost incurred Production Cost:(R) Period Cost:(R)

Explanation / Answer

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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

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