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Dream Limited is engaged in the production of olive oil. Subtotals of the budgeted overheads for the first six months of the 20X6 financial year (January to June 20X6) revealed the following: General factory Harvesting Pressing overhead Variable overhead (R ) Fixed overhead (R ) Budgeted activity 2 970 000 5 350 000 1 760 000 500 000 1 600 000 1 900 000 Machine hours 140 000 112 000 Normal capacity Machine hours 200 000 160 000 General factory variable overheads are apportioned in line with machine hours worked in each department and general factory fixed overhead are apportioned on the basis of the normal machine hour capacity of the two departments. 1. It has been a long-standing company practice to establish selling prices by applying a mark-up on cost of 45%. The direct material content is R20 per unit. Each unit of the product will take three labour hours (five machine hours) in the harvesting department and four labour hours (six machine hours) in the pressing department. Hourly labour rates are R25.00 and R26 respectively. 2. The following actual information relates to the 20X5 financial year: January-June July-December 20X5 20X5 Fixed selling and administration costs (dependent on the number of units sold) Distribution costs (Fixed and variable) (dependent on number of units sold) Sales units R456 000 R670 000 R1 342 800 R1 057 100 40 000 30 000 It is expected that the sales units during the first six months of the 20X6 year will be 40 000 units. Fixed selling and administration costs will not be incurred as from the 20X6 financial year. During the 20X6 financial year, the distribution costs is expected to be the same as last year's. Required: Assuming that your calculations are prepared on 1 January 20X6, calculate four different cost-plus prices using four different cost bases which may help with the pricing decision for Dream Limited. Note: Round off your calculations to two decimal places.

Dream Limited is engaged in the production of olive oil. Subtotals of the budgeted overheads for the first six months of the 20X6 financial year (January to June 20X6) revealed the following: General factory Harvesting Pressing overhead Variable overhead (R ) Fixed overhead (R ) Budgeted activity 2 970 000 5 350 000 1 760 000 500 000 1 600 000 1 900 000 Machine hours 140 000 112 000 Normal capacity Machine hours 200 000 160 000 General factory variable overheads are apportioned in line with machine hours worked in each department and general factory fixed overhead are apportioned on the basis of the normal machine hour capacity of the two departments. 1. It has been a long-standing company practice to establish selling prices by applying a mark-up on cost of 45%. The direct material content is R20 per unit. Each unit of the product will take three labour hours (five machine hours) in the harvesting department and four labour hours (six machine hours) in the pressing department. Hourly labour rates are R25.00 and R26 respectively. 2. The following actual information relates to the 20X5 financial year: January-June July-December 20X5 20X5 Fixed selling and administration costs (dependent on the number of units sold) Distribution costs (Fixed and variable) (dependent on number of units sold) Sales units R456 000 R670 000 R1 342 800 R1 057 100 40 000 30 000 It is expected that the sales units during the first six months of the 20X6 year will be 40 000 units. Fixed selling and administration costs will not be incurred as from the 20X6 financial year. During the 20X6 financial year, the distribution costs is expected to be the same as last year's. Required: Assuming that your calculations are prepared on 1 January 20X6, calculate four different cost-plus prices using four different cost bases which may help with the pricing decision for Dream Limited. Note: Round off your calculations to two decimal places.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Dream Limited is engaged in the production of olive oil. Subtotals of the budgeted overheads for the first six months of the 20X6 financial year (January to June 20X6) revealed the following: General factory Harvesting Pressing overhead Variable overhead (R ) Fixed overhead (R ) Budgeted activity 2 970 000 5 350 000 1 760 000 500 000 1 600 000 1 900 000 Machine hours 140 000 112 000 Normal capacity Machine hours 200 000 160 000 General factory variable overheads are apportioned in line with machine hours worked in each department and general factory fixed overhead are apportioned on the basis of the normal machine hour capacity of the two departments. 1. It has been a long-standing company practice to establish selling prices by applying a mark-up on cost of 45%. The direct material content is R20 per unit. Each unit of the product will take three labour hours (five machine hours) in the harvesting department and four labour hours (six machine hours) in the pressing department. Hourly labour rates are R25.00 and R26 respectively. 2. The following actual information relates to the 20X5 financial year: January-June July-December 20X5 20X5 Fixed selling and administration costs (dependent on the number of units sold) Distribution costs (Fixed and variable) (dependent on number of units sold) Sales units R456 000 R670 000 R1 342 800 R1 057 100 40 000 30 000 It is expected that the sales units during the first six months of the 20X6 year will be 40 000 units. Fixed selling and administration costs will not be incurred as from the 20X6 financial year. During the 20X6 financial year, the distribution costs is expected to be the same as last year's. Required: Assuming that your calculations are prepared on 1 January 20X6, calculate four different cost-plus prices using four different cost bases which may help with the pricing decision for Dream Limited. Note: Round off your calculations to two decimal places.
Transcribed Image Text:Dream Limited is engaged in the production of olive oil. Subtotals of the budgeted overheads for the first six months of the 20X6 financial year (January to June 20X6) revealed the following: General factory Harvesting Pressing overhead Variable overhead (R ) Fixed overhead (R ) Budgeted activity 2 970 000 5 350 000 1 760 000 500 000 1 600 000 1 900 000 Machine hours 140 000 112 000 Normal capacity Machine hours 200 000 160 000 General factory variable overheads are apportioned in line with machine hours worked in each department and general factory fixed overhead are apportioned on the basis of the normal machine hour capacity of the two departments. 1. It has been a long-standing company practice to establish selling prices by applying a mark-up on cost of 45%. The direct material content is R20 per unit. Each unit of the product will take three labour hours (five machine hours) in the harvesting department and four labour hours (six machine hours) in the pressing department. Hourly labour rates are R25.00 and R26 respectively. 2. The following actual information relates to the 20X5 financial year: January-June July-December 20X5 20X5 Fixed selling and administration costs (dependent on the number of units sold) Distribution costs (Fixed and variable) (dependent on number of units sold) Sales units R456 000 R670 000 R1 342 800 R1 057 100 40 000 30 000 It is expected that the sales units during the first six months of the 20X6 year will be 40 000 units. Fixed selling and administration costs will not be incurred as from the 20X6 financial year. During the 20X6 financial year, the distribution costs is expected to be the same as last year's. Required: Assuming that your calculations are prepared on 1 January 20X6, calculate four different cost-plus prices using four different cost bases which may help with the pricing decision for Dream Limited. Note: Round off your calculations to two decimal places.
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