Question

You are the manager of Compounders Ltd. The company mixes compound for smaller plastic extrusion companies. Compounders Ltd has six (6) mixing machines with a maximum capacity (100%) of 250 ton per month. However, due to power cuts, the machines are currently being operated at 75% of installed capacity.

One (1) ton of a compound mixture consists of two (2) raw materials: 0.7 ton of Electrolyte and 0.3 ton of Copper Wire. Assume no wastage. There are no opening and closing inventories. All raw materials purchased are being used in the month of purchase, and all compound mixed are being sold in the month mixed.

Each mixing machine requires two (2) operators. The company is operating a nine (9) hour shift and each machine operator earns R75 per hour. No weekend time nor overtime is allowed.

The company is a price setter and the pricing policy is based on a mark-up of the total production cost at 50%.

The company incurred the following costs for the month:

1. Import (purchase) raw material for one month’s production. Material Electrolyte @ R60 per ton and Copper Wire @ R95 per ton.

2. The import costs amount to R1,000 per 250 ton of Material Electrolyte and R1,500 per R120 ton of Copper Wire.

3. Paid the wages based on a twenty (20) working days.

4. The factory foreman earns a salary of R15,000 per month.

5. The cost of security is as follows: Guard at the entrance of the factory R3,500 per month and the guard at the entrance to the admin offices R3,750 per month.

6. The monthly rental amounts to R25,000. Rent is allocated based on floor space occupied. The factory occupies 9,100 ??2 and the office block 3,900 ??2.

7. Office expenses amounts to R64,000 per month.

8. Compound delivery cost amount to R1,200 per 125 ton of compound delivered.

1.3 Calculate the contribution per ton produced. (2)

1.4 Calculate the break-even tons to be mixed (2)

Answer 1