Harriet Ltd is a South African company that manufactures commercial buses and trucks. The companys products are
Question:
Harriet Ltd is a South African company that manufactures commercial buses and trucks. The company’s products are customer-focused, technologically advanced and fuel efficient. This has propelled the company to the forefront of the industry. Harriet Ltd was incorporated in 1974 and has a number of manufacturing facilities around the country.
Harriet Ltd is in the process of finalising management accounts for its financial year ended 30 June 2018. Financial information of the business for the financial year ended 30 June 2018 is provided below:
1. Harriet Ltd does not carry any inventory of raw materials and work in progress. The number of buses and trucks sold by Harriet Ltd and the respective selling prices per unit are provided below:
Number of units sold: 40 Busses and 60 Trucks
Average selling price per unit: R1 280 000 Busses and R1 650 000 Trucks
2. Direct material costs per bus and truck amounted to R350 000 and R430 000 respectively. The number of buses and trucks at the end of each year end were as follows:
30 June 2017: 10 Busses and 20 Trucks
30 June 2018: 10 Busses and 10 Trucks
3. The company employs its direct manufacturing labour force as and when required. Based on past experience, the company requires 650 hours and 800 hours to manufacture a bus and a truck respectively. An hourly wage rate for labour force used in the manufacturing of buses amounts to R350. On the other hand, the hourly wage rate for the labour force involved in the manufacturing of trucks is 40% higher than the wage rate for the manufacture of buses.
4. Harriet Ltd entered into an agreement with its parent company, Harriet International Plc that allows Harriet Ltd to sell commercial buses and trucks under the Harriet International Plc trademark. As a result, Harriet Ltd pays a royalty of R75 000 to the parent company for every bus or truck sold. An advertising agency that handles all advertising, charges the company a 5% commission on each bus or truck sold.
5. Fixed manufacturing overhead costs are allocated to production based on the number of machine hours. The fixed manufacturing costs for the 30 June 2018 financial year amounted to R27 540 000. Information pertaining to the utilisation of the machine for 30 June 2018 financial year is as follows:
Actual number of machine hours: 36000 Busses and 72000 Trucks
6. Fixed administration and distribution costs are allocated to buses or trucks based on the number of buses or trucks sold. The fixed administration and distribution costs for the 30 June 2018 financial year amounted to R22 676 000.
REQUIRED
a) Calculate the unit product cost of the buses and trucks manufactured by Harriet Ltd in the 30 June 2018 financial year.
b) Prepare the income statement of Harriet Ltd for the year ended 30 June 2018 for trucks only using the absorption costing method.
c) Calculate profit for the year ended 30 June 2018 of Harriet Ltd for trucks only that would arise if the variable costing method is used.
Do not prepare the income statement but rather reconcile the profit from the absorption costing method determined in part (b) to the variable costing profit.
d) How many buses and trucks should Harriet Ltd sell in order to break-even if the sales mix does not change?
Probability & Statistics for Engineers & Scientists
ISBN: 978-0130415295
7th Edition
Authors: Ronald E. Walpole, Raymond H. Myers, Sharon L. Myers, Keying