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QUESTION 1 ( 1 2 Marks ) Study the information provided below and answer the following questions. Laxson Manufacturers ( LM ) is a manufacturing

QUESTION 1(12 Marks)
Study the information provided below and answer the following questions.
Laxson Manufacturers (LM) is a manufacturing company which produces a range of products. LM has developed a budget
for the life cycle of a new product, X1. The information provided below relates exclusively to product X1:
INFORMATION
Lifetime total Per unit
Development and design costs R1900000
Direct manufacturing costs R50
Depreciation costs R1000000
Decommissioning costs R550000
Machine hours 4
Production and sales units 300000
The companys total fixed production overheads are budgeted to be R144 million each year and total machine hours are
budgeted to be 96 million hours. The company absorbs overheads on a machine hour basis.
Required:
1.1.Elaborate on the phrase: The company absorbs overheads....
(2)
1.2.Determine the budgeted life-cycle cost per unit for product X1.
(5)
1.3.A cost accountant with considerable experience in Kaizen principles of continuous improvement has estimated that the
machine hours per unit can be reduced to 3.2 hours if employees are provided training and development on a regular
basis. Based on this estimate, the budgeted total fixed production overheads would be revised to R102 million each year
and budgeted total machine hours to 78 million hours. Based on the analysis of the cost accountant, the direct
manufacturing cost per unit will increase to R53. Production output of 300000 units will not change. Is this a good idea?
Show all calculations.

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