produce a standard cost card for each product and the budgeted operating statement in an absorption costing format for GRIX

Grix produces and sells 2 different types of plumbing components for the domestic market. Its basic model consistently returns a profit but over the last year the company has become concerned about potential losses occurring on its luxury model. The production director believes that no further cost savings can be made on labour and materials and he is concerned that the luxury model may therefore have to be abandoned.

Sales and direct costs During the year 40 000 basic and 20 000 luxury models were expected to be sold, at R70 and R100 each respectively. The company's production costs are made up of direct materialls, direct labour and fixed production overheads. Direct costs for each product are as follows: Basic Luxury R. 3 Direct materials 4 Direct labour (@R20 per hour) 10 Total direct cost per unit 8 14 The company uses a just-in-time inventory control method, as all products are made to order. Costing system The company operates a basic absorption costing system. The fixed production overhead is a general production overhead (it is not product specific). The total budgeted fixed production overhead is R2 400 000, and it is absorbed using a labour hour rate. Administration costs Fixed administration costs total R540 000 for basic components and R600 000 for luxury components. These include the costs of specific marketing campaigns: R200 000 for basic and R400 000 for luxury. The company is considering changing to an activity-based costing system. The company has analysed the budgeted fixed production overheads and has found that the costs for various activities are as follows: R'000 600 Machining costs 900 Set up costs 180 Quality inspections Stores receiving 420 300 Stores issues 2 400 Total The analysis also revealed the following information: Luxury Basic Machine running time (hours) 0.25 0.25 Components per production run 500 500 Number of component deliveries during the year 20 000 30 000 Inspections per production run 125 50 Number of issues from stores 15 000 15 000 Sales and direct costs During the year 40 000 basic and 20 000 luxury models were expected to be sold, at R70 and R100 each respectively. The company's production costs are made up of direct materialls, direct labour and fixed production overheads. Direct costs for each product are as follows: Basic Luxury R. 3 Direct materials 4 Direct labour (@R20 per hour) 10 Total direct cost per unit 8 14 The company uses a just-in-time inventory control method, as all products are made to order. Costing system The company operates a basic absorption costing system. The fixed production overhead is a general production overhead (it is not product specific). The total budgeted fixed production overhead is R2 400 000, and it is absorbed using a labour hour rate. Administration costs Fixed administration costs total R540 000 for basic components and R600 000 for luxury components. These include the costs of specific marketing campaigns: R200 000 for basic and R400 000 for luxury. The company is considering changing to an activity-based costing system. The company has analysed the budgeted fixed production overheads and has found that the costs for various activities are as follows: R'000 600 Machining costs 900 Set up costs 180 Quality inspections Stores receiving 420 300 Stores issues 2 400 Total The analysis also revealed the following information: Luxury Basic Machine running time (hours) 0.25 0.25 Components per production run 500 500 Number of component deliveries during the year 20 000 30 000 Inspections per production run 125 50 Number of issues from stores 15 000 15 000