3. REnew's manufacturing process and recent financial performance REnew manufactures PV solar panels in the following process at its manufacturing facility in Krugersdorp, Gauteng: - Polysilicon manufacturing: Polysilicon is a special type of silicon used in PV solar panels that acts as the medium that absorbs the energy from the sun's rays. The production of this silicon is a highly specialised, automated process that is supervised by trained scientists. - Wafer manufacturing: This is an automated chemical process where the silicone is turned into a liquid form, chemicals are added, and a thin layer of this liquid silicone is poured into a wafer-shaped mould to set. - PV cell fabrication: The silicon wafer is used as the base from which PV cells are manufactured. This is a specialised, manual process where the wafers are coated with a chemical gas to improve the PV cell's ability to absorb sunlight. - Assembly: The completed PV cells are manually attached to a backing board along with the electrical components. The backing board is secured into a metal frame to form the PV solar panel. Due to the delicate nature of this assembly process, this function is performed by highly skilled labourers who are paid a fixed monthly salary. REnew is one of a few companies in the PVRSS sector manufacturing a single component only that currently does not provide after-sales maintenance contracts for their PV solar panels. They do however supply customers with a list of recommended maintenance contractors who have experience working with REnew's PV solar panels. Frequent feedback from PVRSS suppliers has indicated that they would prefer REnew to provide after-sales maintenance contracts as REnew's recommended maintenance contractors are very busy and customers often wait long periods for their PV solar panels to be serviced or fixed. REnew sold 40000 PV solar panels during the 2023 financial year (FY2023) (FY2022: 36 000). The FY2023 sales volume is 80% of the company's practical manufacturing capacity. Extracts from REnew's detailed management accounts for FY2023 are included below, together with comparative FY2022 actual figures and accompanying notes [note: any bonuses earned by the executive directors have not been accounted for in the figures below]: Notes: (a) The selling price of each PV solar panel sold during FY2023 was R5 695 (FY2022: R5 545). (b) REnew does not normally keep any inventory of PV solar panels or other raw material on hand and has no work-in-progress at year-end. The PV solar panels are manufactured as and when REnew receives an order from PVRSS suppliers. At the end of FY2023, REnew manufactured 160 PV solar panels for a new customer. However, the customer cancelled their order after the required PV solar panels had been manufactured, which resulted in closing inventory on hand at the end of FY2023. REnew used these 160PV solar panels to fulfil orders during March 2023. The actual direct material cost per PV solar panel for FY2023 was as follows: Total actual manufacturing costs incurred by REnew in FY2023 were R199 882 000. This is comprised of: The actual direct manufacturing costs of R4 100 per panel (as indicated above), Other variable manufacturing overheads (such as water and electricity) totalling R1 565 730, and The actual fixed manufacturing overheads which includes depreciation and the cost of salaried employees who are responsible for the various manufacturing processes. Actual fixed manufacturing overheads incurred were 2.5% less than the budgeted figure that was used to calculate REnew's fixed manufacturing overhead absorption rate. REnew has always allocated fixed manufacturing overheads to PV solar panels based on their normal capacity, which was set at 75% of practical manufacturing capacity in FY2023. Any resulting over- or under-absorption of fixed manufacturing overheads for a year is included in 'cost of sales'. REnew's directors recently discussed whether the company should implement an activity-based costing (ABC) system. They have not yet decided on this. c) Non-manufacturing overheads for the year only comprise fixed costs and relate to the salaries of administrative staff (including directors' salaries but excluding bonuses) as well as marketing expenses. d) Research and development costs relate to research performed on improving the absorption properties of polysilicon that would enable the PV solar panel to absorb more energy from the sun on cloudy days. REnew budgets to spend 5% (e) In FY2022 REnew took out a loan to acquire a state-of-the-art PV solar panel testing machine costing R13 million. REnew pays interest on this loan at a variable rate linked to the prime lending rate plus 1% per annum. Currently this is an interest rate of 12.5% per annum (i.e., prime of 11.5%+1% ). (f) Tax was payable at a rate of 27\% in FY2023 (FY2022: 28\%). (g) REnew's budgeted profit after tax (before any potential bonuses paid to the executive directors) for FY2023 was R4 500000. Based on section 3 in the scenario, calculate: i. REnew's fixed manufacturing overhead allocation rate for FY2023, ii. The full manufacturing absorption cost of one PV solar panel manufactured by REnew in FY2023, iii. REnew's over- or under-recovery of fixed manufacturing overheads in FY2023, and iv. The total amount of fixed manufacturing overheads included in REnew's closing inventory balance at 28 February 2023 that was deferred to March 2023