1. 4 (20 Marks)

4.1	REQUIRED
Study the information given below and calculate the following, if the proposal is accepted:
4.1.1	Break-even quantity.	(4 marks)
4.1.2	The number of litres of diesel that must be sold to achieve a profit of R300 000 per month.	(4 marks)
INFORMATION
The output of a project of GHJ Limited is diesel. The diesel is sold at R17.60 per litre and the variable costs total R14 per litre. The fixed costs per month are R272 400. After six months of commencing the project, the sales achieved was 1 075 260 litres and the sales were more or less the same volume each month. In an attempt to improve performance, the project manager is considering the following proposal:
Customers (Service stations) will be allowed to purchase diesel on credit. It is estimated that 50% of the average monthly sales (in litres) will be to customers who would take advantage of this opportunity. Sales to these customers should increase by 20%. Sales volumes to customers who do not take advantage of the credit policy are expected to remain unchanged. Additional costs arising from this proposal are expected to be:
Selling costs of R0.60 per litre.
Fixed administrative costs of R15 000 per month.

4.2	REQUIRED
Study the information provided below and answer the following questions:
4.2.1	Calculate the activity cost rates using activity-based costing (ABC).	(6 marks)
4.2.2	Calculate the total overheads cost per product using the ABC system.	(4 marks)

INFORMATION
Salsa Ltd manufactures two products, viz. Product M and Product N. The enterprise intends implementing the Activity-Based Costing (ABC) system. The budgeted information for 2021 is as follows:
	R
Total overheads:	4 500 000
Machine set-ups	300 000
Design costs	900 000
Other overheads	3 300 000

	Product M	Product N	Total
Units manufactured	1 500 units	13 500 units	15 000 units
Machine set-ups	150 set ups	150 set ups	300 set ups
Design hours	6 000 hours	24 000 hours	30 000 hours
Direct labour hours	12 000 hours	48 000 hours	60 000 hours
Other overheads are allocated to individual products on the basis of direct labour hours

4.3	An order obtained was received for the supply of a product which is made at a project of
	VBN Limited. The material cost of making the product for the order is R20 000. Only 25%
	of the primary material for the product is available in stock. The material was purchased a
	year ago for R6 000. If the material is not used it will be scrapped at a price of R2 000.
	The remaining material has to be purchased at a cost of R14 000.
	How much is the total relevant cost of the material?	(2 marks)