Panda Flooring (Pty) Ltd ('Panda Flooring' 'Panda' or 'the company') is a business based in Epping,...

       

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Panda Flooring (Pty) Ltd ('Panda Flooring' 'Panda' or 'the company') is a business based in Epping, Cape Town, that specialises in the design, supply, and installation of high-quality bamboo flooring. Panda Flooring targets the middle to the high-end consumer market and has a financial year ending 31 March. Panda Flooring strives to contribute positively to job creation and produce proudly South African products, sourcing from local suppliers. Panda Flooring incurred substantial losses over the past two years due to the decline in the bamboo flooring market. Consumers have reduced their spending on luxury goods due to the rising cost of living in South Africa. Thabo, the Chief Financial Officer (CFO) of Panda Flooring, is considering the introduction of low-cost flooring options in anticipation that the expanded market reach will increase profitability. Panda Flooring is considering manufacturing PVC plastic flooring rolls for the low-cost flooring market. PVC plastic flooring is made from liquid plastic that is in abundant supply in China. Due to the abundance of supply relative to the demand, liquid plastic is relatively cheap to source in China. Thabo needs your assistance in determining the product cost and drawing up a projected income statement to present to the board of directors of Panda Flooring. Thabo has given you the following information about the manufacturing process of PVC plastic flooring rolls: The manufacturing process: 1. Liquid plastic is available in the form of plastic granules that are imported from a Chinese supplier. The plastic granules are heated at high temperatures to liquefy the plastic granules. The liquid form makes it easier to mould into different shapes. Each unit of PVC plastic flooring is two (2) square meters long and requires 2.94 kilograms of plastic granules to manufacture. Panda plans to import plastic granules from a Chinese supplier. The Chinese supplier purchases the granules from Brazil for 1000 Brazillian Real (BRL) per tonne, then applies a 25% markup upon their sales. The Chinese Yuan is expected to appreciate by an average of 5% against the South African Rand in the 2024 financial year. 2. The heating process happens in South Africa and is electricity intensive. Thabo obtained the following electricity costing projections based on the square metres of plastic flooring processed: Square Metres 5 000 6 000 7500 Total Cost R27 500 R30 000 R58 750 Thabo further tells you that, due to the electricity crisis in South Africa and resultant loadshedding, businesses using more than 10 000 kilowatts of electricity per month are penalised by an additional charge of R25 000 per month. The penalty is meant to discourage the high usage of electricity and to encourage the use of more energy-efficient manufacturing practices. Each square metre of flooring manufactured uses, on average, 1.43 kilowatts of electricity. Panda Flooring (Pty) Ltd ('Panda Flooring' 'Panda' or 'the company') is a business based in Epping, Cape Town, that specialises in the design, supply, and installation of high-quality bamboo flooring. Panda Flooring targets the middle to the high-end consumer market and has a financial year ending 31 March. Panda Flooring strives to contribute positively to job creation and produce proudly South African products, sourcing from local suppliers. Panda Flooring incurred substantial losses over the past two years due to the decline in the bamboo flooring market. Consumers have reduced their spending on luxury goods due to the rising cost of living in South Africa. Thabo, the Chief Financial Officer (CFO) of Panda Flooring, is considering the introduction of low-cost flooring options in anticipation that the expanded market reach will increase profitability. Panda Flooring is considering manufacturing PVC plastic flooring rolls for the low-cost flooring market. PVC plastic flooring is made from liquid plastic that is in abundant supply in China. Due to the abundance of supply relative to the demand, liquid plastic is relatively cheap to source in China. Thabo needs your assistance in determining the product cost and drawing up a projected income statement to present to the board of directors of Panda Flooring. Thabo has given you the following information about the manufacturing process of PVC plastic flooring rolls: The manufacturing process: 1. Liquid plastic is available in the form of plastic granules that are imported from a Chinese supplier. The plastic granules are heated at high temperatures to liquefy the plastic granules. The liquid form makes it easier to mould into different shapes. Each unit of PVC plastic flooring is two (2) square meters long and requires 2.94 kilograms of plastic granules to manufacture. Panda plans to import plastic granules from a Chinese supplier. The Chinese supplier purchases the granules from Brazil for 1000 Brazillian Real (BRL) per tonne, then applies a 25% markup upon their sales. The Chinese Yuan is expected to appreciate by an average of 5% against the South African Rand in the 2024 financial year. 2. The heating process happens in South Africa and is electricity intensive. Thabo obtained the following electricity costing projections based on the square metres of plastic flooring processed: Square Metres 5 000 6 000 7500 Total Cost R27 500 R30 000 R58 750 Thabo further tells you that, due to the electricity crisis in South Africa and resultant loadshedding, businesses using more than 10 000 kilowatts of electricity per month are penalised by an additional charge of R25 000 per month. The penalty is meant to discourage the high usage of electricity and to encourage the use of more energy-efficient manufacturing practices. Each square metre of flooring manufactured uses, on average, 1.43 kilowatts of electricity.

Answer rating: 100% (QA)

SOLUTION Report to the Directors of Panda Flooring 1 Budgeted Variable and Absorption Costing Income Statements for the Financial Year Ended 31 March 2024 Variable Costing Income Statement Sales Reven... View the full answer