QUESTION 2 MANUFACTURING (25 marks: 35 minutes) You are provided with information relating to Ace Clothing for the year ended 31 October 2016. The owner of the business is Andy Ace. The business consists of two factories operating independently in different parts of the town, each with their own factory foreman/manager. One of the factories produces Ace Blazers and the other produces Ace Tracksuits Andy has compared the profit he has earned over the past two years (2016 and 2015) and has found that it has increased by more than R400 000 However, he is still not satisfied with the results as he has invested a lot of his personal capital in the business REQUIRED: 21 Provide two reasons, each with calculations, to explain the increase in the direct labour cost of producing blazers. Provide two points of advice to Andy (6) Andy does not know how to calculate the break-even point Give the workings to prove that the 2016 break-even point of 10 095 units for blazers 2.2 is in fact correct 2.3 2.4 . 2.5 Comment on the changes in units of blazers and tracksuits produced in comparison to the break-even points for the past two years Quote figures to support your answer (4) Refer to Information A (v.) for the decision taken in respect of blazers Calculate the % increase in the selling price of blazers Explain whether or not this has benefited the business Consider the information A (vi) for the decision taken in respect of Ace Tracksuits as well as all costs associated with the tracksuits Explain how this decision led to changes in the vanable and overhead costs relating to Ace Tracksuits Quote / calculate figures for the changes and provide possible reasons for the changes Explain whether the selling price of the tracksuits is appropriate or not Quote figures (2) . INFORMATION: A. Background information: 1. The inflation rate has been 6% for the past two years il Andy currently pays a fixed annual salary of R381 600 to each factory foreman/manager. This represents a 6% increase on the 2015 figure iii. The factory premises are rented at a fixed monthly rental. This also increased in line with inflation from the beginning of the financial year iv. Andy allows his factory foremen/managers to make decisions relating to their factories, but their decisions have to be approved by him. V. Gerry, the factory foreman/manager of Ace Blazers, was pleased that blazers sold well in 2015. A decision was made to adjust the price of blazers significantly in 2016 VI. Ayanda, the factory foreman/manager of Ace Tracksuits, felt that they should produce better quality tracksuits as other firms in town were producing only cheaper tracksuits A decision was made to improve the design and fabric of the tracksuits in 2016, and to rent extra floor space for the factory B The accountant has identified the following information: Manager / foreman: General information: Total fixed costs (factory overhead & administration costs) Net profit ACE BLAZERS ACE TRACKSUITS Gerry Ayanda 2016 2015 2016 2015 R1 484 000 R1 400 000 R1 900 000 R 1 400 000 R103 600 R490 000 R1 138 000 R528 500 Variable costs per unit: Direct material costs per unit Direct labour costs per unit Selling & distribution costs per unit Total variable costs per unit R91,00 R88.00 R95,00 R74.00 R168.00 R80.00 R110.00 R93,00 R24.00 R16.00 R12.00 R12.00 R203,00 R185,00 R260.00 R215.00 R350.00 R358,00 R348.00 Additional information / calculations: Selling price per unit charged by Ace Clothing Selling price of competitors Number of units made and sold Break-even point R205.00 R300.00 10 800 10 095 R290,00 R290,00 18 000 13 333 R220.00 14 500 31 000 19 388 10 526 25 QUESTION 2 MANUFACTURING (25 marks: 35 minutes) You are provided with information relating to Ace Clothing for the year ended 31 October 2016. The owner of the business is Andy Ace. The business consists of two factories operating independently in different parts of the town, each with their own factory foreman/manager. One of the factories produces Ace Blazers and the other produces Ace Tracksuits Andy has compared the profit he has earned over the past two years (2016 and 2015) and has found that it has increased by more than R400 000 However, he is still not satisfied with the results as he has invested a lot of his personal capital in the business REQUIRED: 21 Provide two reasons, each with calculations, to explain the increase in the direct labour cost of producing blazers. Provide two points of advice to Andy (6) Andy does not know how to calculate the break-even point Give the workings to prove that the 2016 break-even point of 10 095 units for blazers 2.2 is in fact correct 2.3 2.4 . 2.5 Comment on the changes in units of blazers and tracksuits produced in comparison to the break-even points for the past two years Quote figures to support your answer (4) Refer to Information A (v.) for the decision taken in respect of blazers Calculate the % increase in the selling price of blazers Explain whether or not this has benefited the business Consider the information A (vi) for the decision taken in respect of Ace Tracksuits as well as all costs associated with the tracksuits Explain how this decision led to changes in the vanable and overhead costs relating to Ace Tracksuits Quote / calculate figures for the changes and provide possible reasons for the changes Explain whether the selling price of the tracksuits is appropriate or not Quote figures (2) . INFORMATION: A. Background information: 1. The inflation rate has been 6% for the past two years il Andy currently pays a fixed annual salary of R381 600 to each factory foreman/manager. This represents a 6% increase on the 2015 figure iii. The factory premises are rented at a fixed monthly rental. This also increased in line with inflation from the beginning of the financial year iv. Andy allows his factory foremen/managers to make decisions relating to their factories, but their decisions have to be approved by him. V. Gerry, the factory foreman/manager of Ace Blazers, was pleased that blazers sold well in 2015. A decision was made to adjust the price of blazers significantly in 2016 VI. Ayanda, the factory foreman/manager of Ace Tracksuits, felt that they should produce better quality tracksuits as other firms in town were producing only cheaper tracksuits A decision was made to improve the design and fabric of the tracksuits in 2016, and to rent extra floor space for the factory B The accountant has identified the following information: Manager / foreman: General information: Total fixed costs (factory overhead & administration costs) Net profit ACE BLAZERS ACE TRACKSUITS Gerry Ayanda 2016 2015 2016 2015 R1 484 000 R1 400 000 R1 900 000 R 1 400 000 R103 600 R490 000 R1 138 000 R528 500 Variable costs per unit: Direct material costs per unit Direct labour costs per unit Selling & distribution costs per unit Total variable costs per unit R91,00 R88.00 R95,00 R74.00 R168.00 R80.00 R110.00 R93,00 R24.00 R16.00 R12.00 R12.00 R203,00 R185,00 R260.00 R215.00 R350.00 R358,00 R348.00 Additional information / calculations: Selling price per unit charged by Ace Clothing Selling price of competitors Number of units made and sold Break-even point R205.00 R300.00 10 800 10 095 R290,00 R290,00 18 000 13 333 R220.00 14 500 31 000 19 388 10 526 25