QUESTION $2$

Lux Sweets manufactures luxury brand sweets for five$-$star hotels. The company prides itself on only

being available to niche five$-$star hotels. Due to their cost of manufacture the company only

manufacturers per order, this ensures that the company does not have any closing or opening stock

as all their production output is sold to the customer. The directors of the company have become

concerned about the performance of the company. A new management accountant was hired to

evaluate the management accounts of the company.

Lux Sweets manufactures four types of sweets namely, Candy Balls, Dragon Eggs, Lickerish

Gel and Sour Gum.

Overheads are absorbed on machine$-$hour basis.

The production overheads report indicated the below:

The management accountant calculated the total cost per product as follows:

Required

a$)$ Criticise the calculation performed by the management accountant. $(10)$

b$)$ Reperform the calculation of the cost per product calculation. $(20)$

c$)$ Assume the direct labour and direct material are the only variable costs and that the total

fixed costs are R $2850000.$ Assist the management accountant in calculating the break$-$

even sales. $($i$.$e$.,$ break$-$even rand value$)(15)$

d$)$ The directors have indicated that their ideal profit would be R $5,000,000.$

$($i$)$ Calculate by how much the current contribution would need to be increased to reach

the desired profit. $(3)$

$($ii$)$ Provide two ways in which management can reach the new contribution. $(2)$

$($Assume fixed costs to be R $2850000)$