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

GRIX, a small subsidiary of the HTZ Group, is engaged in the production of plastic components for plumbing-related services. Sub-totals, on a spreadsheet of budgeted overheads for a year, reveal the following: Production Department Assembly Department General factory overheads 1 600 2 500 500 850 1 050 1 750 Variable overhead ROOOS Fixed overhead ROO0s Budgeted activity Machine hours (000s) Practical capacity Machine hours (000s) 800 600 1 200 800 For the purpose of the real purpose of the reallocation of general factory overheads, it is agreed me variable overheads accrue in line with the machine hours worked in each department. General factory fixed overheads are to be reallocated basis of the practical machine-hour capacity of the two departments It has been a long-standing company practic long-standing company practice to establish selling prices by applying a mark-up on the full manufacturing cost of between 25% A Possible price is being sought for one new product, which is in the final stage O development. The total market for this product is estimated at 200 000 units per annum. Market research indicates that the company could expect to obtain and hold about 10% of the market. It is hoped that the product will offer some improvement over competitors' products, which are currently marketed at between R90 and R100 each. The Product Development Department have determined that the direct material content is R9 per unit. Each unit of the product will take two labour hours (four machine hours) in the Production Department and three labour hours (three machine hours) in Assembly. Hourly labour rates are R5.00 and R5.50 respectively. Management estimate that the annual fixed costs which would be specifically incurred in relation to the product are: supervision, R20 000; depreciation of a recently acquired machine, R120 000; and advertising, R27 000. It may be assumed that these costs are included in the budget given above. Given the state of development of this new product, management do not consider it necessary to make revisions to the budgeted activity levels for any possible extra machine hours involved in the manufacturing process. Traditional and activity-based costing GRIX produces and sells two 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. 202 During the year 40 000 basic and 20 000 lux sold, at R70 and R100 each respectively. The company basic and 20 000 luxury models were expected to be hade up of direct materials, direct labour and fixed production spectively. The company's production costs are direct labour and fixed production overheads. Direct costs for each product are as follows: Basic Luxury R 3 Direct materials Direct labour (@R20 per hour) Total direct cost per unit 10 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'000 600 900 180 Machining costs Set up costs Quality inspections Stores receiving Stores issues Total 420 300 2 400 Dans The analysis also revealed the following information: Machine running time (hours) Components per production run Number of component deliveries during the year Inspections per production run Number of issues from stores Basic 0.25 500 30 000 50 15 000 Luxury 0.25 500 20 000 125 15 000 CTY Furnishers for each of the GRIX, a small subsidiary of the HTZ Group, is engaged in the production of plastic components for plumbing-related services. Sub-totals, on a spreadsheet of budgeted overheads for a year, reveal the following: Production Department Assembly Department General factory overheads 1 600 2 500 500 850 1 050 1 750 Variable overhead ROOOS Fixed overhead ROO0s Budgeted activity Machine hours (000s) Practical capacity Machine hours (000s) 800 600 1 200 800 For the purpose of the real purpose of the reallocation of general factory overheads, it is agreed me variable overheads accrue in line with the machine hours worked in each department. General factory fixed overheads are to be reallocated basis of the practical machine-hour capacity of the two departments It has been a long-standing company practic long-standing company practice to establish selling prices by applying a mark-up on the full manufacturing cost of between 25% A Possible price is being sought for one new product, which is in the final stage O development. The total market for this product is estimated at 200 000 units per annum. Market research indicates that the company could expect to obtain and hold about 10% of the market. It is hoped that the product will offer some improvement over competitors' products, which are currently marketed at between R90 and R100 each. The Product Development Department have determined that the direct material content is R9 per unit. Each unit of the product will take two labour hours (four machine hours) in the Production Department and three labour hours (three machine hours) in Assembly. Hourly labour rates are R5.00 and R5.50 respectively. Management estimate that the annual fixed costs which would be specifically incurred in relation to the product are: supervision, R20 000; depreciation of a recently acquired machine, R120 000; and advertising, R27 000. It may be assumed that these costs are included in the budget given above. Given the state of development of this new product, management do not consider it necessary to make revisions to the budgeted activity levels for any possible extra machine hours involved in the manufacturing process. Traditional and activity-based costing GRIX produces and sells two 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. 202 During the year 40 000 basic and 20 000 lux sold, at R70 and R100 each respectively. The company basic and 20 000 luxury models were expected to be hade up of direct materials, direct labour and fixed production spectively. The company's production costs are direct labour and fixed production overheads. Direct costs for each product are as follows: Basic Luxury R 3 Direct materials Direct labour (@R20 per hour) Total direct cost per unit 10 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'000 600 900 180 Machining costs Set up costs Quality inspections Stores receiving Stores issues Total 420 300 2 400 Dans The analysis also revealed the following information: Machine running time (hours) Components per production run Number of component deliveries during the year Inspections per production run Number of issues from stores Basic 0.25 500 30 000 50 15 000 Luxury 0.25 500 20 000 125 15 000 CTY Furnishers for each of the