QUESTION 1 (50 MARKS) Eeshoke Chula Chula (Pty) Lld ("Chuta Chulor') manufactures high-quality long sleeve work shirts, with buttons and a collar. They have obtained a substantial market share in the past few years from sales to high-profile business people, because of their product premium price strategy. Chula Chula's reputation for high-quality shirts originated from their unique mbxture of cotton and wool used in the manufacturing of the shirts. Chula Chula owns a revolutionary machine named the Super Sew, which is used to manufacture the shirts. The machine sewis the material as well as sews the buttons on the shirts, fo form the final product. There is also another machine which specially packages every shirt. The machine is called the Speod Packer. Springle's year end is 31 Docember. Chula Chula created the following standiscls for the upcoming 2023 financial year: Sales: - Market reoearch has revealed that Chula Chula can expect to sell 60000 shirts (also the normal annual capacily) at N\$400 per shirt. Costs: 1. Material: (Each shirt needs 3 metres of material in total) * Cotton: Cotton can be purchased at N\$50 por metre. - Wool: Wool is imported from sheep farmers in Australia at $8.50 per metre (an exchange rate of NS10:S1 is accepted in calculating the standard price). - The porfect mixture is 70% cotton and 30% wool. - Buttons: Each shirt needs 6 buttons at N\$2 per button. 2. Labour: - 5 Labourers are needed to operate the Super Sew. All labourers are needed at the same time to operate the machine. These labourers are paid N\$25 per hour and in takes them 1 hour to manufacture 60 shirts. - 3 Labourers are needed to operate the Speed Packer and they are paid N\$18 per hour. It takes them 1 hour to manufacture 80 shirts. 3. Variable overhead cost: - Variable overhead cost consists of plastic needed in the packaging of the shirts. Each shirt needs 0.5 metre of plastic for packaging. Plastic is purchased at N\$20 per metre. 4. Fixed overhead cost: - Super Sew's cost price is NS4 600000 and is depreciated over B years according to the straight line method. - Speed Packer's cost price is N\$3 825000 and is depreciated over 9 years according to the straight line method. - The factory manager's salary is N\$18 500 per month. - There are no other budgeted fixed overheads other than those indicated above. - Fixed overheads are allocated on the basis of units produced. 5. Other non-manufacturing cost: - Consists of marketing. sales and administrative costs of N\$500 000 and is foxed per year. \begin{tabular}{|c|c|c|} \hline \multicolumn{2}{|c|}{\begin{tabular}{l} REQUIRED \\ (a) Prepare the \end{tabular}} & \multirow{2}{*}{\begin{tabular}{|c|c|} MARKS \\ (10) \end{tabular}} \\ \hline (a) & \begin{tabular}{l} Prepare the budgeted Statement of Comprehensive Income for the year \\ ended 31 December 2023 . \\ Calculate all possibl \end{tabular} & \\ \hline (b) & \begin{tabular}{l} Calculate all pOssible variances. \\ NB: YOU ARE NOT REQUIRED TO CALCULATE: \\ - Efficiency and Capacity variances when calculating Floced \\ Overhead Cost variances. \\ - Any mix and yield variances \end{tabular} & (32) \\ \hline (c) & Give possible reasons for the material and labour variances. & (6) \\ \hline \multirow[t]{3}{*}{ (d) } & Explain the difference between budgets and standard costing. & (2) \\ \hline & Show all your workings! & \\ \hline & TOTAL MARKS & (50) \\ \hline \end{tabular} Actual results for the vear ended 31 Decembetion Notes: 1. 80000 units were sold during the year because of an aggressive marketing campaign conducted by Chula Chula during the year: 2. Total material used was 280000 metres for the year, made up of: - 154.000 metres of cotton was used during the year. - 126000 metres of Wool was used during the year. The exchange rate also unexpectedly increased to NS11.50:51 for the year due to economic instability in the Southern African region. 3. Buttons wore purchased at NS1.90. The lower price was a result of volume discounts granted by the supplier because Chula Chula purchased in large quantities during the year. 4. Labourers who operated the Super Sew and "Master Sticher" (see note 8 below) only manulactured 50 shirts per hour during the yoar. 5. Labourers who operated the Speed Packer manufactured according to the standard of 80 shirts per hour. 6. 0.55 metres of plastic was used for the packaging per shirt. 7. On the 1st of January 2023, the Super Sew was sold at its carrying amount, and a new machine named the Master Stitcher was purchased for N55 400000 . Still, assume a write-off period of 8 years according to the straight line method. 8. As a result of pressure from labour unions, the factory manager's salary was increased by N\$500 per month. Additional Information: - Ignore VAT and other Tax consequences. - There was no opening or closing stock in relation to budgeted or actual figures. - Assume that the buttons have no impact on the mbture between cotton and wool