QUESTION $1(12$ Marks$)$

Study the information provided below and answer the following questions.

Laxson Manufacturers $($LM$)$ is a manufacturing company which produces a range of products. LM has developed a budget

for the life cycle of a new product, X$1.$ The information provided below relates exclusively to product X$1$:

INFORMATION

Lifetime total Per unit

Development and design costs R$1900000$

Direct manufacturing costs R$50$

Depreciation costs R$1000000$

Decommissioning costs R$550000$

Machine hours $4$

Production and sales units $300000$

The company$$s total fixed production overheads are budgeted to be R$144$ million each year and total machine hours are

budgeted to be $96$ million hours. The company absorbs overheads on a machine hour basis.

Required:

$1\mathrm{.}1.$Elaborate on the phrase: The company $$absorbs overheads....$$

$(2)$

$1\mathrm{.}2.$Determine the budgeted life$-$cycle cost per unit for product X$1.$

$(5)$

$1\mathrm{.}3.$A cost accountant with considerable experience in Kaizen principles of continuous improvement has estimated that the

machine hours per unit can be reduced to $3\mathrm{.}2$ hours if employees are provided training and development on a regular

basis. Based on this estimate, the budgeted total fixed production overheads would be revised to R$102$ million each year

and budgeted total machine hours to $78$ million hours. Based on the analysis of the cost accountant, the direct

manufacturing cost per unit will increase to R$53.$ Production output of $300000$ units will not change. Is this a good idea?

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