Mvete Limited is an established company in the manufacturing industry. The company is manufacturing a very successful product, namely Vete12. The following cost structure is given to you, the newly appointed Trainee Cost Accountant, to advise management on the different levels of production: At the current level of 15 000 units produced and sold: Direct material R20 per unit Direct labour R375 000 Indirect material R5 per unit Indirect labour (includes the production supervisors’ salary of R240 000. The remainder is R5.50 per unit R352 500 Other manufacturing overheads (all variable) R12.50 per unit Depreciation charge PPE (production plant and machinery) R375 000 Selling and administrative expenses: • Variable selling expenses R10.25 per unit • Fixed selling expenses R5 per unit • Administrative expenses (all fixed) R7 per unit Required b) Why is there a difference in the unit cost? Discuss briefly c) Assume the company produces and sell 20 000 units, and wishes to make a net profit of R10 per unit. What would be the expected selling price per unit?
Mvete Limited is an established company in the manufacturing industry. The company is manufacturing a very successful product, namely Vete12. The following cost structure is given to you, the newly appointed Trainee Cost
At the current level of 15 000 units produced and sold:
Direct material R20 per unit
Direct labour R375 000
Indirect material R5 per unit
Indirect labour (includes the production supervisors’ salary of R240 000. The remainder is R5.50 per unit R352 500
Other manufacturing
Selling and administrative expenses:
• Variable selling expenses R10.25 per unit
• Fixed selling expenses R5 per unit
• Administrative expenses (all fixed) R7 per unit
Required
b) Why is there a difference in the unit cost? Discuss briefly
c) Assume the company produces and sell 20 000 units, and wishes to make a net profit of R10 per unit. What would be the expected selling price per unit?
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