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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:

  1. 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.
  2. 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. 
  3. 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.
  4. The entity does not budget for work-in-progress inventory, as all goods produced are completed and transferred to finished goods.
  5. 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. 
  6. 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

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