Question 2 (30 marks)

Namibia Cellars (NC) is a large whiskey manufacturer based in Southern Namibia. Their whiskies are considered world class by many enthusiasts, and are therefore mainly sold to export markets. They are currently producing three whiskies, namely the 5 year, 10 year and 15 year. The names corresponds to the years that each type is required to mature. The whiskies are produced by distilling A-grade wine and ageing them in oak barrels. After the ageing process is completed, the whiskies are bottled in one litre bottles and sold to the export markets.

The following information for the three products was compiled by the costing department and applies to the 2021 year:

	5 year	10 year	15 year
Sales mix in units	60%	30%	10%
Sales price	N$250	N$700	N$1 300
Export cost per bottle	N$50	N$115	N$325
Litres of A-grade wine required per bottle	1	3	5
Direct labour hours required per bottle	2	8	15
Machine hours required per bottle	10	50	100

A-grade wine	N$40 per litre
Direct labour per hour	N$10
International liquor license per year	N$450 000

As part of the ageing process, the whiskies have to be heated and cooled at critical times. This is performed automatically by advanced machinery. NCs electricity expense is directly related to the amount of hours that these machines are operated. Electricity costs were as follows at the given activity levels:

Machine hours	70 000	95 000	120 000
Electricity costs	N$290 000	N$340 000	N$390 000

It can be assumed that fixed costs remain constant for the entire relevant range of production.

The maximum demand for the companys products per year is 2 500 bottles of 5 year, 1 000 bottles of 10 year and 1 200 bottles of 15 year.

The tax rate is 32%.

Requirement		Mark
		Sub- total	Total
2.1	Calculate the break-even point in units for every type of whiskey if the current sales mix is maintained.	15	15
2.2	If there are only 7 500 litres of A-grade wine available, determine the sales mix in bottles that will maximise the profit.	6	21
2.3	Calculate the net profit to be earned at the sales mix as calculated in (2.2) above.	3	24
			30