Dream Limited is engaged in the production of olive oil. Subtotals of the budgeted overheads for the first six months of the 20X6 financial year (January to June 20X6) revealed the following: General factory Harvesting Pressing overhead Variable overhead (R ) Fixed overhead (R ) Budgeted activity 2 970 000 5 350 000 1 760 000 500 000 1 600 000 1 900 000 Machine hours 140 000 112 000 Normal capacity Machine hours 200 000 160 000 General factory variable overheads are apportioned in line with machine hours worked in each department and general factory fixed overhead are apportioned on the basis of the normal machine hour capacity of the two departments. 1. It has been a long-standing company practice to establish selling prices by applying a mark-up on cost of 45%. The direct material content is R20 per unit. Each unit of the product will take three labour hours (five machine hours) in the harvesting department and four labour hours (six machine hours) in the pressing department. Hourly labour rates are R25.00 and R26 respectively. 2. The following actual information relates to the 20X5 financial year: January-June July-December 20X5 20X5 Fixed selling and administration costs (dependent on the number of units sold) Distribution costs (Fixed and variable) (dependent on number of units sold) Sales units R456 000 R670 000 R1 342 800 R1 057 100 40 000 30 000 It is expected that the sales units during the first six months of the 20X6 year will be 40 000 units. Fixed selling and administration costs will not be incurred as from the 20X6 financial year. During the 20X6 financial year, the distribution costs is expected to be the same as last year's. Required: Assuming that your calculations are prepared on 1 January 20X6, calculate four different cost-plus prices using four different cost bases which may help with the pricing decision for Dream Limited. Note: Round off your calculations to two decimal places.
Dream Limited is engaged in the production of olive oil. Subtotals of the budgeted overheads for the first six months of the 20X6 financial year (January to June 20X6) revealed the following: General factory Harvesting Pressing overhead Variable overhead (R ) Fixed overhead (R ) Budgeted activity 2 970 000 5 350 000 1 760 000 500 000 1 600 000 1 900 000 Machine hours 140 000 112 000 Normal capacity Machine hours 200 000 160 000 General factory variable overheads are apportioned in line with machine hours worked in each department and general factory fixed overhead are apportioned on the basis of the normal machine hour capacity of the two departments. 1. It has been a long-standing company practice to establish selling prices by applying a mark-up on cost of 45%. The direct material content is R20 per unit. Each unit of the product will take three labour hours (five machine hours) in the harvesting department and four labour hours (six machine hours) in the pressing department. Hourly labour rates are R25.00 and R26 respectively. 2. The following actual information relates to the 20X5 financial year: January-June July-December 20X5 20X5 Fixed selling and administration costs (dependent on the number of units sold) Distribution costs (Fixed and variable) (dependent on number of units sold) Sales units R456 000 R670 000 R1 342 800 R1 057 100 40 000 30 000 It is expected that the sales units during the first six months of the 20X6 year will be 40 000 units. Fixed selling and administration costs will not be incurred as from the 20X6 financial year. During the 20X6 financial year, the distribution costs is expected to be the same as last year's. Required: Assuming that your calculations are prepared on 1 January 20X6, calculate four different cost-plus prices using four different cost bases which may help with the pricing decision for Dream Limited. Note: Round off your calculations to two decimal places.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Dream Limited is engaged in the production of olive oil.
Subtotals of the budgeted overheads for the first six months of the 20X6 financial year
(January to June 20X6) revealed the following:
General factory
Harvesting
Pressing
overhead
Variable overhead (R )
Fixed overhead (R )
Budgeted activity
2 970 000
5 350 000
1 760 000
500 000
1 600 000
1 900 000
Machine hours
140 000
112 000
Normal capacity
Machine hours
200 000
160 000
General factory variable overheads are apportioned in line with machine hours
worked in each department and general factory fixed overhead are apportioned
on the basis of the normal machine hour capacity of the two departments.
1.
It has been a long-standing company practice to establish selling prices by
applying a mark-up on cost of 45%. The direct material content is R20 per unit.
Each unit of the product will take three labour hours (five machine hours) in the
harvesting department and four labour hours (six machine hours) in the pressing
department. Hourly labour rates are R25.00 and R26 respectively.
2.
The following actual information relates to the 20X5 financial year:
January-June
July-December
20X5
20X5
Fixed selling and administration costs
(dependent on the number of units sold)
Distribution costs (Fixed and variable)
(dependent on number of units sold)
Sales units
R456 000
R670 000
R1 342 800
R1 057 100
40 000
30 000
It is expected that the sales units during the first six months of the 20X6 year will be
40 000 units. Fixed selling and administration costs will not be incurred as from the
20X6 financial year. During the 20X6 financial year, the distribution costs is expected
to be the same as last year's.
Required:
Assuming that your calculations are prepared on 1 January 20X6, calculate four
different cost-plus prices using four different cost bases which may help with the
pricing decision for Dream Limited.
Note: Round off your calculations to two decimal places.
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