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Umgodla (Pty) Ltd was founded by Nonceba, who is an accomplished artisan and the sole director of the company. The company makes high fashion hand-made handbags and has been supplying these handbags to the Western Cape market for the past two years. The process of manulacturing starts with creating the body of the handbag. The handbag is made from the one and a hall (1.5) metres piece of leather. which is consistent in colour. by cutting out five basic sections of the bag the front. the back. the sides and the bottom. To cut out the parts and to ensure that all handbags have the same size. the artisans use special patterns. The sections are stitched together by hand. starting from sewing the front, back and sides to the bottom and then stitching all of the parts together. The one (1) metre polyester lining fabric is stitched to the interior of the bag and sewn together with the sides and the bottom. The strap of the handbag is also made of leather. The leather straps are then stitched to the bag. In the nancial year under review, Umgodla (Pty) Ltd purchased leather locally at a cost of R140 per metre. Indirect material is also purchased locally. Umgodla (Pty) Ltd imports all the polyester lining that is required for making the handbag from a supplier in India. When the company started making handbag the exchange rate between the South African rand (R) and the US Dollar (S) was R13.50 for $1. Since then the value of the rand has deteriorated to the extent that currently. the exchange rate is R16.00 for $1. This has resulted in an increase in the total purchase price for the current year to R100 300. Total shipping charges and import duties during the year 01 July 2020 to 30 June 2021 amounted to R5 900. Inventories at the beginning and end of the nancial year under review were as follows: 01 July 2020 30 June 2021 Leather 200 metres @ R130 140 metres Polyester lining fabric 150 metres @ R 76 130 metres Finished Goods (handbags) 60 units @ R795 100 units Work in progress - - The company uses a FIFO cost formula. The value of indirect materials on hand on 01 July 2020 was R2 100 and on 30 June 2021 was R2 800. The total value of indirect materials used in production during the year was R10 200. In addition to the founder who occupies the role of the factory supervisor, Umgodla (Pty) Ltd employs four (4) employees and they are all involved in the production of handbags. During the year the handbags started and completed by the workers were as follows: Busi 400 Dimpho 300 Aluwani 250 Kwanda 250 It takes one person 7 hours and 30 minutes to make one hantbag. The company pays each employee R45 per hour for making the handbag. The factory supewisor earns R15 000 per month. At the end of the nancial year, the company pays its sole director 10% of net income. remaining alter accounting for all expenses, as a bonus. For the hancbag-making business. Umgodla (Pty) Ltd hires a building in George and the company pays R9 000 per month as rent for the facility. The rent indudes the cost of electricity and water. The company also insures the building against re and theft for R300 per month. One handbag is sold for R970. 5 REQUIRED: 1.1 Identify one major risk that Umgodla (Pty) Ltd is facing. (1) 1.2 How many nished handbags were sold during the year? (3) 1.3 How many metres of the leather and polyester lining were purchased during the year? (4) 1.4 Calculate the total cost ot the leather that was used in production during the year. (2) 1.5 Calculate the total cost of the polyester lining that was used in production during the ye(ar). 5 1.6 Calculate the total cost of the labour at the four employees during the year. (5) 1.? Calculate the total cost of the indirect materials (variable production overheads) purchased during the year. (2) 1.8 Calculate the total xed production overheads for the year. {2) 1.9 Apply an actual costing base and use your answers to questions 1.4 to 1.8 to calculate the cost of one handbag. (6)
