Deep Cleaners Ltd ("DeepC") manufactures high-quality industrial detergents at their plant based in the Qwaqwa area of the Free State. DeepC manufactures two products namely Multi-purpose ("Multi") and Ultra-clean ("Ultra"). Both products are packaged and sold to cleaning companies and property managers in 10-litre plastic containers (one unit). The manufacturing process uses a significant quantity of water, and the water is obtained from the municipal water system. DeepC's financial statements are prepared using the absorption costing system, valuing all its inventory items using the first-in-first-out (FIFO) method, and having a 31 August financial year-end.

1. THE BUDGETED INFORMATION FOR THE FINANCIAL YEAR ENDING 31 AUGUST 2023

Provided is the following information:

1.1. Multi is sold at R240 per unit and Ultra at R470 per unit.

1.2. DeepC budgeted to have no opening and closing work-in-progress inventory and no opening and closing direct raw material inventory at the beginning and the end of the financial year. DeepC budgeted to have in inventory 18 000 finished units of Multi and 7 000 finished units of Ultra on the 1st of September 2022 valued at R130 per Multi unit and R350 per Ultra unit.

1.3. DeepC budgeted to sell a total of 2 100 000 units which consist of 70% Multi and 30% Ultra respectively.

1.4. The direct raw materials consist of various liquid chemicals and are budgeted to be R100 per Multi unit and R300 per Ultra unit.

1.5. Multi is manufactured in batches of 2 000 units and Ultra in batches of 1 275 units. It takes 1,5 machine hours to produce one batch of Multi and 1,7 machine hours to produce one batch of Ultra. There are 192 machine hours available per month. DeepC does not foresee any other manufacturing limitations.

1.6. Multi's planned production is 120 000 units per month and Ultra's 51 000 units per month, except for November and December. There is usually a high demand for cleaning products during these two months. To ensure DeepC has sufficient inventory during these two months they budgeted to increase their production of both products by 15% for these months only.

1.7. DeepC employs direct labourers (refer to point 1.8) and permanent staff (refer to point 1.12) in the manufacturing process.

1.8. Direct labour costs are R95 per direct labour clock hour. 8% idle time is allowed for both products and it takes 5,40 and 10,80 direct labour clock minutes to manufacture one unit of Multi and one unit of Ultra, respectively.

1.9. All chemicals used in production must be handled with great care due to the corrosive nature thereof and the harmful fumes it releases when exposed to air. The empty chemical containers are dumped in an open area behind the factory premises next to a children's play area. The dumping site is cleaned twice a year by WrongCrowd (Pty) Ltd, which has been fined numerous times for illegal dumping. WrongCrowd's majority shareholder is DeepC's chief executive officer.

1.10. Variable manufacturing overhead (VMO) costs are allocated based on machine time used in the manufacturing of each product. The variable manufacturing overhead rate per machine hour is R6 400 per hour. 1.11. Both products are packaged in 10-litre plastic containers costing R3 per container. 1.12. The fixed manufacturing overhead (FMO) costs are allocated to the product using an Activity-based costing (ABC) system.

The budgeted FMO for the year and related ABC information is:

Details Note R Production line batch set-up cost a 7 990 080 Rental of storage warehouse b 13 200 000 Rental of factory 23 758 065 Permanent manufacturing staff salaries d 8 797 990 Total R53 746 135