QUESTION 1 Eeshoke Chula Chula (Pty)Ltd ("Chula Chula") 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 mixture 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 sews Packer. Springle's year end is 31 December. Chula Chula created the following standards for the upcoming 2023 financial year: Sales: - Market research has revealed that Chula Chula can expect to sell 60000 shirts (also the normal annual capacity) 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 per metre. - Wool: Wool is imported from sheep farmers in Australia at $8.50 per metre (an exchange rate of N$10:$1 is accepted in calculating the standard price). - The perfect 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 it 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 N$4600000 and is depreciated over 8 years according to the straight line method. - Speed Packer's cost price is N$3825000 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$500000 and is fixed per year. Actual results for the vear ended 31 December 2023 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: - 154000 metres of cotton was used during the year. - 126000 metres of Wool was used during the year. The exchange rate also unexpectedly increased to N$11.50:$1 for the year due to economic instability in the Southern African region. 3. Buttons were purchased at N$1.90. 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 Stitcher" (see note 8 below) only manufactured 50 shirts per hour during the year. 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 N\$5 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 mixture between cotton and wool. \begin{tabular}{|l|l|c|} \hline \multicolumn{2}{|l|}{ REQUIRED } & MARKS \\ \hline (a) & \begin{tabular}{l} Prepare the budgeted Statement of Comprehensive Income for the year \\ ended 31 December 2023. \end{tabular} & (10) \\ \hline (b) & \begin{tabular}{l} Calculate all possible variances. \\ NB: YOU ARE NOT REQUIRED TO CALCULATE: \\ Efficiency and Capacity variances when calculating Fixed \\ Overhead Cost variances. \\ Any mix and yield variances \end{tabular} & (32) \\ \hline (c) & \begin{tabular}{l} Give possible reasons for the material and labour variances. \\ (d) \end{tabular} & \begin{tabular}{c} Explain the difference between budgets and standard costing. \\ Show all your workings! \end{tabular} \\ \hline & TOTAL MARKS & (50) \\ \hline \end{tabular}