Study the case study below and answer the following questions oussrlou 1 (20 Marks) Octopus Limited' a Cape Town-based engineering firm, develops and sells a range of mining equipment and industrial processing systems. The company has two divisions mining and industrial processing. The mining division is well known for launching equipment for the mining sector and its new products are always eagerly anticipated by the mining industry. The industrial processing division produces various processing systems for a range of industries. Octopus Limited has previously used a traditional absorption costing system and full cost plus pricing to cost and price its products. It has recently recruited a new finance director, T Dlamini, who believes the company would benefit from using target costing. He is keen to try this method on a piece of new product, which has been recently approved. After discussion with the board, Mr Dlamini undertook market research to find out customers' opinions on a new mining equipment and to assess potential new products offered by competitors. 1.1 1.2 Explain the concept of target costing and discuss any TWO {2} benets of adopting a target costing (3 approach so early in the product's life marks} cycle. Using the information provided below, determine the target selling price for each unit of the mining (10 equipment (show all calculations}. marks} INFORMATION Based on the results of the market research, Mr Diamini has estimated total sales volume of 100 units. The company seeks to achieve a target profit margin of 35%. The cost data below has been projected for the new mining equipment: Production costs per unit: Direct material 240 000 Direct labour 175 000 Direct machining Set-up Assembly Inspection and testing Total non-production costs: Design (salaries and technology} 7 000 000 Marketing 3 600 000 Distribution 5 000 000 1.3 Using the information provided below. determine the life-cycle cost per unit of the industrial {? marks) processing system (show all calculations}. INFORMATION In addition to the mining equipment. the industrial processing division of Octopus is set to launch a newly developed industrial processing system. The following information relates to the system for the 2023 2025 nancial years: Variable production cost per unit 830 650 450 Fixed production costs 1 080 000 1 260 000 1 440 000 Variable selling cost per unit 200 150 150 Fixed selling costs ?20 000 792 000 900 000 Administrative costs 280 000 280 000 280 000 QUESTION 2 [10 Marks} The excerpts of the nancial statements of Octopus Limited for the year ended 31 December 2022 are shown below. Octopus Limited Statement of comprehensive income for the year ended 31 December 2022 2022 2021 R R Sales 120 000 000 105 000 000 Gross profit 48 000 000 42 000 0000 . Other operating income 8 500 000 i' 500 000 Operating expenses {33 000 000) Operating prot 21 500 000 15 500 000 Finance income 1 450 000 1 200 000 Finance costs {1 890 000) {I 950 000) Prot before tax 22 941 100 15 750 000 Income tax {6 882 330) {4 725 000) Prot after tax 16 058 "NO 11 025 000 Octopus Limited Statement oi nancial position as at 31 December 2022 2022 2021 2020 -- R Assets Non-current assets 32 850 000 29 950 000 26 000 000 Inventories 8 250 000 5 645 000 7 250 000 . Accounts receivable 3 940 000 5 525 000 4 950 000 Cash 960 000 880 000 800 000 Total assets 46 000 000 42 000 000 39 000 000 Equity and liabilities Ordinary share capital {450 000 shares] 15 008 000 15 000 000 15 000 000 Retained earnings 9 580 000 T 200 000 5 800 000 Long-term loan {18%) 9 230 000 10 500 000 12 000 000 Accounts payable 5 148 000 4 325 000 3 750 000 Other current liabilities 7 050 000 4 975 000 1 450 000 Total equity and liabilities 46 000 000 42 000 000 39 000 000 Using the financial statements provided above. calculate the following ratios for the 2022 financial year (show all calculations. including the analytical formula used to calculate each ratio}: 2.1 Net operating prot margin {2 marks} 22 Return on total assets {2 marks} 2.3 Return on capital employed (2 marks} 2.4 Times interest earned {2 marks} 2.5 Capital gearing ratio {2 marks} END OF PAPER