Question $2$

$[30$ marks$]$

Coolbreeze $($Pty$)$ Ltd $($CB$),$ manufactures as well as imports high quality airconditioners, and sells them to the public. The company uses the absorption costing method to value its stock. The company's profit has increased sharply over the past few years as consumers, both residential and commercial, are feeling the effects of global warming. The company sources most of the sub$-$components required for the manufacturing process from local suppliers, and then installs everything on site.

The company has three products and uses a standard costing system. The products' specifics are listed below:Type:

Air $-$ B Used: Residential$-$Budget Power: $5$

$000$ BTU Installation hours: $1$ Note: $1$ Type:

Air$-$Lux Used: Residential$-$Upmarket Power: $30000$ BTU Installation hours: $30$ Note: $2$ Type: Air$-$Comm Used: Commercial Power: $80000$ BTU Installation hours: $50$ Note: $3$

Notes:

$1.$ This unit $($Air $-$B$)$ is currently available in the market for R$10500$ per unit. The company has a target mark$-$up of $30\%$ on cost$.$ Since CB imports the finished product directly from Japan, they usually manage to sell it for $10\%$ below the usual market selling price, as was the case this year. They budgeted to sell approximately $1000$ units per annum but could only reach $90\%$ of budget. The selling price is as per budget.

$2.$ The locally manufactured, upmarket units $($Air$-$Lux$)$ are steadily gaining ground. They were introduced at the end of the previous year at an introductory price of R$100000,$ which was the set standard price. After the budget meeting for the current year, the managing director $($MD$)$ decided to bring the prices for the new financial year more in line with usual market selling prices of R$135000.$ They sold $500$ units last year, which was $50\%$ more than the budgeted quantity of $333$ units expected, largely due to an aggressive marketing strategy. The accountant only increased the budget with $10\%$ for the current year. Reflecting on the figures, the MD expects a $10\%$ drop in actual sale quantities compared to last year due to the higher price. The profit margin on sales remained constant at $15\%.$

$2\mathrm{.}1$ Calculate the following standard cost variances for Coolbreeze: a$.$ Selling price variances for all types of airconditioners. b$.$ Sales volume variance at standard profit margins for each type of air$-$conditioner. c$.$ The actual overhead expense for the period $2\mathrm{.}2$ a$.$ Prepare the overhead cost that should be allocated to Air$-$Comm based on the ABC costing method, taking the comments of the junior accountant into consideration b$.$ Critically assess the appropriateness of the junior accountant's assumptions.

Air$-$Comm is also manufactured locally and typically sells for R$380000$ per unit excluding the extended warranty. To distinguish themselves, they offer an extended after$-$sales service with an extended warranty, which can be purchased for an additional R$40000.$ It is expected that $1$ in every $2$ customers will purchase the warranty. Their sales price is then an average including the extended warranty. The standard selling price including warranty is $($R$380000+$ R$40000\frac{1}{2}=400000).$ Sales also vary based on seasonal challenges within the market. Actual sales numbers for the period came in $9\%$ under budget, but within the target $25\%$ mark$-$up$.$ The actual average price for the year was R$390000$ excluding the warranty.

A survey revealed that the budgeted quantity follows the following probabilities:

$\backslash$table$[[,$Units,Probability$],[$i$.,100$ units,$40\%$