La Fragrance (Pty) Ltd (La Fragrance) manufactures and sells scented candles nationwide. The entitys premise is located in Durban and is divided into two Manufacturing Divisions as well as a Head Office. Manufacturing Division 1 (Division 1) To produce scented candles, La Fragrance purchases beeswax at R90 per kilogram from a local bee farmer. Division 1 places the beeswax into an oven for 30 minutes to melt it. The oven has a capacity of 80 kilograms of wax from which 400 scented candles can be manufactured. The same quantity of melted wax is obtained as placed into the oven. Once the wax has melted, natural fragranced oils are added to the wax. These oils are purchased from Perfume Ltd at R2 300 per litre. Natural oils are required to be added to the melted wax in the ratio of 1 kg wax:15 ml oil. The fragranced wax is then poured into a plastic container in which it will also be sold. The containers are purchased at R1.80 each and 200 grams of fragranced wax is poured into each. Last, a 6 cm wick is placed into the wax before the product cools down and becomes solid. The cost is R34 per 10 meters of a rope of wick. To assist in the above process, 37 staff members are employed. These employees are paid R110 per hour. All of them work 40 hours per week. A manager is employed to oversee the above process and take responsibility for Division 1 and its activities. This manager is paid a salary of R57 000 per month. Once the fragranced wax has settled in the container, the resulting candle can be sold to customers at R470 per candle by Division 1. Division 1 has the capacity to manufacture 2 200 candles per month, although it currently only manufactures 2 050 candles monthly as required by Division 2. 3 HMAC330-1_SA1_Jul-Dec2023_V5_NM_24032023 Manufacturing machinery utilised in Division 1 had a cost price of R440 000 and has a useful life of 5 years. Manufacturing Division 2 (Division 2) The manufactured candles are handed over to Division 2, in which the candles are attractively packaged to be ready for official resale by La Fragrance. Packaging amounts to R16 per scented candle. Twenty-three employees work in Division 2 and each receives R130 per hour. These employees work 40 hours per week. The manager, who is employed to oversee the process and take responsibility for Division 2 and its activities, is paid R46 000 per month. Once the candles are ready for official sale, the candles are delivered to the respective customers, such as large retail shops. The delivery expense amounts to R11 per unit and is absorbed by Division 2. Head Office The Head Office is responsible for making overall decisions, the administration and accounting, and the financial duties of La Fragrance. The Head Office employees total salaries amount to R1 200 000 monthly. Additional information As all machinery is expected to be used evenly throughout its useful life, La Fragrance elected the straight-line depreciation method. The absorption costing method is applied, and direct labour hours of the relevant division are used as the allocation basis. When the scented candle is transferred between Division 1 and Division 2, Division 1 sells it to Division 2 at a cost-based price with a mark-up of 14%. The final product ready for official sale by La Fragrance is sold for R560 per candle. Each scented candle is considered a unit. 4 HMAC330-1_SA1_Jul-Dec2023_V5_NM_24032023 No opening or closing inventory was present in either Division 1 or 2 during any period of the 2024 financial year. The entity has a 28 February financial yearend. Assume all months have 4-weeks for standardisation purposes. REQUIRED: 1.1. Prepare a Statement of Comprehensive Income for Division 1 for the month of 31 July 2023. For question 1.1 only, assume that one of Division 1s employees took unpaid leave during July 2023, and, consequently the employee worked only 136 hours during the month of July 2023. (27 marks) 1.2. An external customer recently approached Division 1 to purchase 400 candles from Division 1. Division 1 can increase their production with immediate effect up to the current capacity limit. Advise Division 1 on the minimum transfer price that should be acceptable to Division 1 for the candles it sells to Division 2. (13 marks)