Question

Solar Technology Limited (STL) has been operating for the last four years in solar industry They manufacture a single product, batteries which are of the same size and capacity. The company is facing two challenges: They recently lost their warehouse due to a fire that gutted the warehouse as such, the company urgently needs bank finance in order to reconstruct the warehouse. The second problem that the company is battling with is the costing of output for the year The following information is prepared for you to enable you to advise management accordingly: Solar Technology Limited: Statement of Profit or Loss: 31 March 2013 N$ N$ 960 000 Sales (32 000 batteries) Less operating Expenses Fixed Selling & Distribution cost Promotion Factory Maintenance costs Cleaning supplies (Production) Indirect labour Purchases (Raw materials) Rental costs (facilities) Plant insurance Depreciation (office equipment) Depreciation (plant) Power and lighting Production labour (direct) Sales commission Total operation expenses Net Loss 110 000 90000 43 000 7 000 120 000 360 000 75 000 8 000 27 000 100 000 80 000 70 000 40 000 1 130 000 (170 000 Additional information: 80 % of the rental costs relate to non-production facilities while 20% of the power and lighting also relates to non-production activities i, i. Inventory for factory cleaning material at 1 April 2012 was valued at N$1 200 ili. Inventory at 31 March 2013 unused materials N$10 000, unfinished production N$50 000, unsold 8 000 batteries and cleaning supplies N$2 000

Answer 1

Step 1

Production Statement for the year ended 31 March 2013

Direct Material	Note 1	N$ 350,000
Direct Labour		N$ 70,000
indirect labour		N$ 120,000
Production Overhead	Note 2	N$ 236,200
Total Production Cost		N$ 776,200
Less unfinished production		N$ 50,000
Production cost of Finished Units produced		N$ 726,200

Note 1

Direct Material

Opening stock Nil

Purchases N$ 360,000

Less closing stock    N$ 10,000

Raw material consumed N$ 350,000

Note 2

Production overhead

Factory maintenance cost N$ 43,000

Cleaning supplies ( 1200 +7000-2000) N$ 6,200

Rental cost (20% of 75,000)    N$ 15,000

Plant Insurance N$    8,000

Depreciation Plant N$ 100,000

Power and Lighting (80% of 80,000) N$    64,000

Total    N$ 236,200

Note 3

All other expenses have been ignored since those were not related to production .

Step 2

Number of units produce

Units sold    32,000

Closing stock of batteries unsold    8,000

Total units produced 40,000

Step 3

Cost of producing one unit

Total cost of production    N$ 726,200

Total Units produced 40,000

Cost of producing one unit N$ 18.15