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XYZ Municipality purifies water before it enters the reticulation network. There are presently 3 purification processes available to the municipality. These processes sre referred to as A, B and C. Budgeted costs and purification information for the coming period is as follows:
Service
A
B
C
(all per 1,000 kiloliters)
Costs
Direct materials
R 120
R 100
R 60
Direct labour
R 42
R 28
Equipment hours
6hrs
4hrs
Labour hours
0.1hr
0.02hrs
Output in 1,000 kl
1,200
1,000
800
They are usually produced in production runs of 10,000 kl and distributed to consumers in batches of 5,000 kl. The municipality uses a cost plus 20% mark-up in order to measure prices. Budgeted purification fixed overhead is absorbed using equipment hour rate, and budgeted overhead for the coming period has been analyzed as follows:
Rent, supervision, power and depreciation
R 260,000
Set-up costs
R 150,000
Goods (chemicals) inwards
R 96,000
Quality inspection
R 52,500
Reticulation
R 97,500
Total
R 656,000
Budgeted equipment hours for the period is 16,400 hours
Required:
(i) Measure the budgeted total cost per 1,000 kl for every process, showing clearly the prime
cost, overhead cost and total cost.
(ii) Using your total cost estimates from (a) (i) and a mark-up of 20% on cost, measure the
budgeted price per 1,000 kl of every of the 3 processes.
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