QUESTION 4

4.1 REQUIRED

Use the information provided below to calculate the overhead costs per unit for each product using activity-based costing

INFORMATION

Remax Inc produces two products viz A and B. The same equipment is used to produce both products.

Details of the cost of activities, inputs and outputs are as follows:

Overheads cost analysis:

	R
Materials handling	540 000
Materials procurement	180 000
Set-up	540 000
Quality control	900 000
Production	2 160 000
	4 320 000

Cost driver analysis

Overheads	Cost drivers	Product A	Product B	Total
Materials handing	Materials movements	360	180	540
Materials procurement	Number of orders	640	360	1000
Set-up	Number of set-ups	216	144	360
Quality control	Number of inspections	540	360	900
Production	Direct labour hours	144 000	36 000	180 000

Annual output

Product A	144 000 units
Product B	36 000 units

4.2 REQUIRED

Calculate the following from the information given below:

4.2.1 Break even quantity (4)

4.2.2 The number of units that must be sold to obtain a net profit of R300 000 (4)

4.2.3 Break-even quantity, if the selling price is reduced by R20 per unit (4)

INFORMATION

The following per unit projected for a product that is the output of Project M is provided below:

Selling price	R400
Direct materials	R140
Direct labour	R60
Variable manufacturing overheads	R40

Fixed manufacturing overheads are expected to amount to R560 000. Projected administration and marketing costs comprise the following:

• Fixed costs R400 000
• Sales commission of 10%