QUESTION 1 25 MARKS Rother Co manufactures a single product, the Bark, details of which are as follows. Per unit R Selli

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Question 1 25 Marks Rother Co Manufactures A Single Product The Bark Details Of Which Are As Follows Per Unit R Selli 1 (134.15 KiB) Viewed 48 times

QUESTION 1 25 MARKS Rother Co manufactures a single product, the Bark, details of which are as follows. Per unit R Selling price 180.00 Direct materials 40.00 Direct labour 16.00 Variable overheads 10.00 Annual fixed production overheads are budgeted to be R1.6 million and Rother Co expects to produce 1,280,000 units of the Bark each year. Overheads are absorbed on a per unit basis. Actual overheads are R1.6 million for the year. Budgeted fixed selling costs are R320, 000 per quarter. Actual sales and production units for the first quarter of 2022 are given below. January - March Sales 240,000 Production 280,000 There is no opening inventory at the beginning of January. Required: Prepare income statements for the quarter, using a) Absorption costing b) Marginal costing c) Reconcile the profits calculated in a) and b) above QUESTION 2 25 MARKS The directors of Ori Ltd are currently considering two mutually exclusive investment projects. Both projects are concerned with the purchase of new plant. The following data is available. Project 1 Project 2 Initial investments R110 000 R70 000 Expected annual operating cash flow Year 1 R60 000 R36 000 Year 2 R30 000 R16 000 Year 3 R40 000 R28 000 Estimated residual value of project at year end of year R8 000 R5 000 The business has an estimated weighted average cost of capital (WACC) of 12%. The projects depreciate for accounting purposes over their useful lives on straight line basis (this depreciation has already been accounted for in the above operating cash flows). Neither project would increase the working capital of the business. Additional information: Ignore taxation. • The business has sufficient funds to meet all capital expenditure requirements. REQUIRED (a) Calculate for each project: i. The net present value (NPV). ii. The discounted payback period. (b) Calculate the Internal Rate of Return (IRR). If the minimum rate of return is 15%, suggest with reason whether you should accept the project or not. 10 10 5 Marks MARKS go