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EcoPack Manufacturing (Pty) Ltd operates in the sustainable packaging sector a...
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EcoPack Manufacturing (Pty) Ltd operates in the sustainable packaging sector and manufactures two biodegradable packaging products:
· EcoTray (ET) – compostable food trays.
· EcoCup (EC) – compostable beverage cups.
EcoPack uses the absorption costing system, and fixed manufacturing overheads (FMO) are allocated based on labour hours Inventory is valued using the FIFO method. The financial year-end is 31 December 2026.
Budget Information for the Year Ending 31 December 2026
Details | Notes | EcoTray(ET) R | EcoCup(EC) R | Total R |
Production units | 1.1 | 3 500 000 | 7 000 000 | 10 500 000 |
Direct material costs | 1.2 | R8 000 000 | R6 000 000 | R14 000 000 |
Direct labour costs | 1.3 | R3 420 000 | ? | ? |
Variable manufacturing overheads | 1.5 | ? | ? | ? |
Fixed manufacturing overheads | 1.6 | ? | ? | R3 000 000 |
Sales commission | 1.7 | ? | ? | ? |
Additional Information:
- Eco Pack budgeted to sell 90% of production unit. The selling price per unit is R21,00 per unit for EcoTray and R15,50 per unit for EcoCup, respectively.
- No direct materials or any other losses occur during the manufacturing process. The manufacturing process is mostly automated, with machines doing most of the work.
- Direct labour is mainly required to monitor the machines, perform basic quality checks and handle materials. Each EcoTray requires 8 minutes of direct labour, and each EcoCup requires 6 minutes of direct labour. The same direct labour rate per hour applies to both products.
- The entity does not budget for work-in-progress inventory, as all goods produced are completed and transferred to finished goods.
- The variable manufacturing overheads are R2,20 per EcoTray and R1,40 per EcoCup.Total Fixed manufacturing overheads (FMO) are R3 000 000 per year.
- EcoPack pays sales commission of 3% of selling price.
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For question 9 only assume that:
(i) The budgeted FMO absorption rate is R2,00 p er labour hour and
(ii) Actual fixed manufacturing overheads amounted to R2 400 000
(iii) All other information
remains as per the above remains the same