Subsequent Years First Year after implementation 2016 onwards 2015 R R Annual Expected Benefits Savings in inventory holding 350000 costs 290000 Reduction in Set-up cost 150000 Reduction in costs of waste 110000 200000 250000 and rework Increased revenue from 180000 300000 customers as a result faster response time Cost of implementing JIT Increased Prevention and 950000 450000 appraisal quality 55000 45000 costs Increased cost of 10% 10% components 5% 10% Decrease in components used** **The annual volume of components purchased before the introduction of the JIT/TQM system includes the following components at the original price negotiated before the introduction of the new systems. Component Quantity Price per component A 5000 R3 B 100 000 R2 55000 R1 D 70 000 R4 Jo-Jo Mahlangu has been planning the implementation of the JIT system for nearly a year now and feels some of the expectations of the proposed JIT/TQM system are incorrect. For example, he cannot understand why the cost of materials should go up. In this regard, he feels that the company is using exactly the same suppliers so there is no logical reason for an increase in materials costs. Similarly, he cannot understand why there should be an increase in prevention and appraisal costs. He also feels SHERQ Version 1 Learner Portfolio of Evidence - Business banking and Customer Management Page 50 of 61 that it is unfair that his performance evaluation for 2015 should be based on this implementation - He feels it could result in him being unfairly evaluated. 1.4. Question: (a) For each component, calculate the expected costs of the extra materials to be utilized (8 Marks] (b) Calculate the total savings and expected additional costs to be derived and incurred from introducing the JIT and TQM systems in 2015 and 2016. [18Marks] (c) Explain to Mr Mahlangu why the cost of materials will increase with the introduction of the JIT and TQM systems. [2 marks] (d) Prepare a report to be issued to Lekkerbek Foods (Pty) Ltd discussing the net impact of the proposal to implement the JIT and TQM system as well as the impact on the company's cost structure as a result of the introduction of both a JIT system, as well as a TQM system. (8 Marks) The following information was extracted from the fixed asset register and appended notes for the reporting period: 90% of a warehouse with a cost of R 1,2 million and a fair value of R 1,56 million was leased to tenants a in the area and the remaining section was used by the company for the storage of goods returned by customers. Ms. Garuneesa Radebe-Ali the Senior Manager for Inventory Management recommended that 70% of the warehouse be used by the company as a centralized distribution point in order to mitigate the current risks and improve control over logistics. The board agreed to implement the recommended and appointed attorneys to terminate the lease agreements with some of the tenants. The total costs incurred to implement the recommendations amounted to R 68,400 (inclusive of VAT) and R 230,000 for legal fees and penalties for cancellation of the lease agreements respectively. At the date the company took occupation of the warehouse its fair value was R 1,75 million. 1.5. Question: (b) Discuss how the implementation of the recommendation affects the recognition and measure of the warehouse in the financial statements in compliance with the financial reporting standards. [6 marks] During September 2015 a delivery vehicle with a cost of R 340,000 and a carrying amount at the date of the accident of R 90,000 was involved in an accident. The insurance valuation regarded the vehicle to be irreparable and that a net amount of R 270,000 (after deducting the purchase of the company at SHERQ Version 1 Learner Portfolio of Evidence - Business banking and Customer Management Page 51 of 61 Subsequent Years First Year after implementation 2016 onwards 2015 R R Annual Expected Benefits Savings in inventory holding 350000 costs 290000 Reduction in Set-up cost 150000 Reduction in costs of waste 110000 200000 250000 and rework Increased revenue from 180000 300000 customers as a result faster response time Cost of implementing JIT Increased Prevention and 950000 450000 appraisal quality 55000 45000 costs Increased cost of 10% 10% components 5% 10% Decrease in components used** **The annual volume of components purchased before the introduction of the JIT/TQM system includes the following components at the original price negotiated before the introduction of the new systems. Component Quantity Price per component A 5000 R3 B 100 000 R2 55000 R1 D 70 000 R4 Jo-Jo Mahlangu has been planning the implementation of the JIT system for nearly a year now and feels some of the expectations of the proposed JIT/TQM system are incorrect. For example, he cannot understand why the cost of materials should go up. In this regard, he feels that the company is using exactly the same suppliers so there is no logical reason for an increase in materials costs. Similarly, he cannot understand why there should be an increase in prevention and appraisal costs. He also feels SHERQ Version 1 Learner Portfolio of Evidence - Business banking and Customer Management Page 50 of 61 that it is unfair that his performance evaluation for 2015 should be based on this implementation - He feels it could result in him being unfairly evaluated. 1.4. Question: (a) For each component, calculate the expected costs of the extra materials to be utilized (8 Marks] (b) Calculate the total savings and expected additional costs to be derived and incurred from introducing the JIT and TQM systems in 2015 and 2016. [18Marks] (c) Explain to Mr Mahlangu why the cost of materials will increase with the introduction of the JIT and TQM systems. [2 marks] (d) Prepare a report to be issued to Lekkerbek Foods (Pty) Ltd discussing the net impact of the proposal to implement the JIT and TQM system as well as the impact on the company's cost structure as a result of the introduction of both a JIT system, as well as a TQM system. (8 Marks) The following information was extracted from the fixed asset register and appended notes for the reporting period: 90% of a warehouse with a cost of R 1,2 million and a fair value of R 1,56 million was leased to tenants a in the area and the remaining section was used by the company for the storage of goods returned by customers. Ms. Garuneesa Radebe-Ali the Senior Manager for Inventory Management recommended that 70% of the warehouse be used by the company as a centralized distribution point in order to mitigate the current risks and improve control over logistics. The board agreed to implement the recommended and appointed attorneys to terminate the lease agreements with some of the tenants. The total costs incurred to implement the recommendations amounted to R 68,400 (inclusive of VAT) and R 230,000 for legal fees and penalties for cancellation of the lease agreements respectively. At the date the company took occupation of the warehouse its fair value was R 1,75 million. 1.5. Question: (b) Discuss how the implementation of the recommendation affects the recognition and measure of the warehouse in the financial statements in compliance with the financial reporting standards. [6 marks] During September 2015 a delivery vehicle with a cost of R 340,000 and a carrying amount at the date of the accident of R 90,000 was involved in an accident. The insurance valuation regarded the vehicle to be irreparable and that a net amount of R 270,000 (after deducting the purchase of the company at SHERQ Version 1 Learner Portfolio of Evidence - Business banking and Customer Management Page 51 of 61