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

$\backslash$table$[[,$Lifetime total,Per unit$],[$Development and design costs,R$1900000,],[$Direct manufacturing costs,,R$50],[$Depreciation costs,R$1000000,],[$Decommissioning costs,R$550000,],[$Machine hours,,$4],[$Production and sales units,$300000,]]$

The company's total fixed production overheads are budgeted to be R$144$ million each year and total machine hours are budgeted to be $96$ million hours. The company absorbs overheads on a machine hour basis.

Required:

$1\mathrm{.}1.$Elaborate on the phrase: The company "absorbs overheads...."

$1\mathrm{.}2.$ Determine the budgeted life$-$cycle cost per unit for product $x.$

$1\mathrm{.}3.$A cost accountant with considerable experience in Kaizen principles of continuous improvement has estimated that the machine hours per unit can be reduced to $3\mathrm{.}2$ 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 R$102$ 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 R$53.$ Production output of $300000$ units will not change. Is this a good idea? Show all calculations.

$(5)$