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(1) This does not seem to be the case, as budgeted and actual production volumes range between 40 000 and 68 000 units; Proportionately no more fixed overheads were allocated to component N; and no indication of frequency of production setup changes. (1) (1)
TOE408W/1 ZAC408H/1 206Factors indicating an increased usefulness for ABC:•Fixed overheads are the most significant cost component for the manufacture of components at a current standard cost of R395 994 (comprising 31% of the total standard production cost). If this is allocated more accurately to components, management will have a better idea of the exact cost of each component. Any other valid factor. (1) (1) (1) Maximum 4 Always apply the theory to the information in the question. Merely mentioning the theoretical concepts will not earn marks. (g) As director of Hightec Ltd, list and motivate one critical area that can be changed in each of the •Calculator division and the •Printer division, thereby improving the performance of Hightec Ltd. CALCULATOR DIVISION Critical Decision Area Increase Price to R390 per unit (1)Motivation Total contribution and operating profit will increase by R1 728 000 (see calculation below) (1)Comparative calculation of contributions at 25 000 and 22 000 levels of sales Level of sales 25 000 units22 000 units R R Selling price 300 390 Variable costs (216)(216) Contribution per unit 84 174 Total contribution 2 100 000 3 828 000 Lessfixed costs (1 764 000)(1 764 000) Operating profit 336 000 2 064 000 (1)
TOE408W/1 ZAC408H/1 207PRINTER DIVISION Critical decision area 1 Not withstanding other marketing issues, target to sell more of printer S that A. This seems to be confirmed by the actual sales that suggest volumes of S at 75% of the mix and A at 25%. (1)Motivation S has a higher contribution per unit than A (1)OR Critical decision area 2 Introduce a competing cartridge (1)Motivation Higher margins are made from selling replacement cartridges (1)Note to marker: Its critical decision area 1 or 2 but not both. Maximum4 h) Briefly discuss the risks that Hightec Ltd and its divisions face. •Although it is stated that the calculators division faces little competition in its market segment, this could change over time as importers decide to localise. (1) •Contribution ratio (calculators) at 28% and operating margins at 4,5% of sales seems a bit low. (1) •The margin of safety in units at 4 000 units would seem very low. A loss of one or more key clients would see the calculator division incur operating losses. (1) •Low profit margins being experienced within the printer division, especially with regards to the sale of printers. (1) •Use of competing cartridges (HP cartridges) by the printer division. (Loses out on good margins.) (1) •The sale of products by the calculator and printer divisions to small, individual businesses on credit could expose the divisions and Hightec to credit risk.