Uuu II\" II hvhh QUESTION 1 (continued) 2.2. BOREHOLE SUPPLIED WATER 2.2.1 .If the borehole supplied water option is considered, SF will use one of the boreholes currently used for its residential needs. This borehole was drilled four years ago at a cost of R38 000. With this option, this borehole will be used to supply 40% of the irrigation water requirements for the grapes at pumping costs of R2,60 per kilolitre. 2.2.2.8F-Winery will be required to drill a second borehole from which the other 60% of the irrigation water requirements for the grapes will be pumped. The current drilling costs for a similar borehole is R45 000, however, as a repeat client, SF is entitled to a 5% drilling costs discount. This borehole will be used exclusively by SF-Winery. New advanced drilling and pumping technology will make it possible to reduce the pumping costs for this borehole only, to R1,80 per kilolitre. 2.2.3.8F-Winery will depreciate the boreholes at 5% per annum on a straight-line basis. 2.2.4.The expected annual service costs will be R5 000 for the existing borehole, 70% resulting from domestic usage and 30% from business usage). For the new borehole, the service costs will be R3 000. The service costs are mainly driven by the level of usage of boreholes. 2.3. To set up the irrigation system to cover the entire farm, the associated costs are expected to be R87 000, once-off payable upfront regardless of the option chosen. 3. SF-BO'I'I' LING 3.1. One of the other companies that will be set up is SF-Bottling. The company will manufacture and sell empty wine bottles (bottles) to both SF-Winery and external customers. SF-Bottling will have maximum capacity to manufacture 960 000 bottles annually. The bottles come in a standard 750 millilitre size. Although the expected annual demand for the bottles is 410 000 and 640 000 for SF-Winery and external customers respectively, SFBottling will be required to prioritise the supply of the bottles to SF-Winery. The grape juice is packed in recyclable 1 litre, 2 litre and 5 litre containers which are sourced externally and not from SFBottling. 3.2. The manufacturing costs based on maximum manufacturing capacity are estimated as follows: Details I Amount Raw material costs per bottle (for glass) R5,50 Direct labour costs per bottle @ R45 per hour R4,50 Total annual manufacturing overheads R2 448 000 Manufacturing overheads comprise of variable and xed components. Variable manufacturing overheads are estimated at R21 per direct labour hour. Fixed manufacturing overheads are allocated based on the annual maximum manufacturing capacity of the bottles. 3.3. Bottles will be sold to external customers packed in a custom-made wooden crate (crate) just before sale. This crate holds eight bottles and will always be packed as such for bottle sales. All the crates will be bought from Bathokwa Crates (\"Bathokwa\") at a purchase price of R12 per crate. SF-Bottling has noted numerous complaints from Bathokwa's existing customers about the fragility of the crates. In the main, it is complained that unused crate inventories stored for an extended period frequently break beyond repair, and in large volumes. Internal sales will not be packed in crates. 3.4. Currently, according to the SF group, to encourage goal congruency, SF-Bottling will sellltransfer bottles to SF-Winery at a price that equals SFBottling's unit full manufacturing cost per bottle. However, the selling price will be R15,50 per bottle to external customers. Moreover, SF Bottling will incur delivery costs of R0,85 per bottle sold to external customers only. 16:22 III ? E}