Question 1 (10)

1.1 D 1.0
1.2 D 1.0
1.3 C 1.0
1.4 A 2.0
Investment R78,000 0.5
÷ Cost saving R22,000 0.5
Payback in years 3.55 1.0

1.5 C 5.0
Investment R100,000
Useful life 5.00
Annual depreciation R20,000 1.0

Additional income R40,000 0.5

Depreciation (R20,000) 0.5
Additional costs (R5,000) 0.5
Profit R15,000 0.5
÷ Average investment R50,000 1.0
ARR 30.00% 1.0

10
Question 2 (20)
Mach hrs
Max capacity Monthly 15,000
Expected usage in January 9,000
Available capacity 6,000 1

Required for special order Units SQ (hrs / unit) Mach hrs

GrapeFruit CC 4,000 0.50 2,000 1
BlueBerry PLC 2,500 1.00 2,500 1

Total Required capacity 4,500

We have capacity for both orders, there will be no opportunity cost.

GrapeFruit CC BlueBerry PLC Calculation of OH rate (only mark if VOH figures are wrong)
SP R 6,950.00 0.5 R 9,700.00 0.5 Total FOH 3,600,000
VC -R 6,290.00 -R 9,650.00 Normal capacity 12,000 machine hours
RM -R 2,250.00 0.5 -R 4,550.00 0.5
DL -R 3,600.00 0.5 -R 4,500.00 0.5 FOH (R/mhr) 300 0.5
VOH -R 300.00 1 -R 600.00 1 SQ (hrs/unit 0.50
Extras -R 140.00 1 FOH CPU 150 0.5
TOH CPU 450
Contribution per unit R 660.00 R 50.00 VOH CPU 300 0.5 for 30 minutes
VOH SR (/hr) 600 0.5
Total contribution: R 2,640,000.00 1 R 125,000.00 1

Set-up R 150,000.00 1
Design R 100,000.00 1
Research (sunk) R 0.00 R 0.00 1
FC (irrelevant) R 0.00 R 0.00 1
Incremental profit/(loss) R 2,540,000.00 0.5 -R 25,000.00 0.5

Based on financial factors only,

I would recommend accepting the GrapeFruit order and rejecting the BlueBerry order. 1
Grapefruit contributes an extra R 2,540,000.00 1
Even though the BlueBerry order makes a postive contribution, the set-up costs negate this benefit.

We should also consider qualitative factors, such as:

Competition.
Long term risk of GrapeFruit selling what is effectively the same product at lower price under their brand.
In my opinion the extra profit is not big enough to justify such a risk.

Therefore I recommend not accepting either.

* If using the spare capacity is a priority,

Fruit Loops Ltd can pre-produce for busier periods.

* Consider investigating the niche market that Grape is targeting.

Perhaps Fruit Loops Ltd can service this niche market directly.

* Or consider introducing another product,

perhaps an entry-level version targeting other markets, such as a Fruit Fone Light.

* If the set-up costs for BlueBerry can be reduced, this offer can be viable,
seeing as though they are not directly competing with us.

* Any two relevant points 2

* Report format 1

Total 21
Max 20
QUESTION 3 (20 MARKS)

3.1 Determination of limiting factors

Labour Hours
BettaGlobe (28/7) x 400 1600 1
GreenGlobe (14/7) x 700 1400 1
Total 3000

Total hours required 3000

Available hours 3500
Excess 500 0.5
Labour is not a limiting factor

Material A Kg
BettaGlobe: (10/5) x 400 800 1
GreenGlobe: (45/5) x 700 6300 1
Total Kg 7100

Total Kg required 7100

Available kg 6000
Shortfall -1100 0.5
Material A is limiting factor

Material B Litres
BettaGlobe: 1 x 400 400 1
GreenGlobe: (20/10) x 700 1400 1
Total litres 1800

Total litres required 1800

Available litres 1600
shortfall -200 0.5
Material B is limiting factor

3.2 BettaGlobe GreenGlobe

R R
Sales 90 100
less: Variable cost 70 90
Contribution 20 10 2

Material A
Kg per unit (10/5)=2 (45/5)=9
10 1.1111111111 2
Ranking 1 2 1

Material B
Litres per unit (10/10)=1 (20/10)=2
Contribution per limiting factor 20 5 2
Ranking 1 2 1

Ranking is consistent therefore produce BettaGlobe first then GreenGlobe

Produce 400 units of BettaGlobe

Material A required (400 x 2) = 800
Material B required (400 x 1) = 400

Material available to produce

Material A (6 000-800) = 5 200
Material B (1 600-400) = 1 200

Produce units 577 of GreenGlobe

Material A (5 200/9)=577 possible units of GreenGlob
Material B (1 200/2)=600 possible units of GreenGlob

Alternative
/ unit units total Balance
Material A 6000
BettaGlobe 2 400 800 5200 1
GreenGlobe 9 577.7778 5200 0 1

Material B 1600
BettaGlobe 1 400 400 1200 1
GreenGlobe 2 600 1200 0 1
MATERIAL A Will Limit us to
GreenGlobe 2 577.7778 1155.556 44.4444444
Produce the lower of the two which is 577 1
21
Max 20