GROUP 21 ASSIGNMENT 1
Chinganga Kundai Michelle R2420848
Badza Felicia Chipo R2420608
Mabvunure Blessed Kundai R2424525
Gwande Anotida B R2420897
Chadyemhunga Charlotte Shantel R2421248
Muswe Rutendo R2421811
Chandimhara Mukudzei Divine R2420856
Munyaradzi Losdes R231862V
Chinjonjo Gugulethu Tanatswa R2421796
BUSINESS NAME: KUNDAI PRIVATE LIMITED
PRODUCTS: Ice-cream, yoghurt, milkshake, cheese
INTRODUCTION
Kundai Ltd as a dairy manufacturing business aims to produce high-quality dairy products
that meet the public’s demands and consumer expectations. We offer a range of unique and
tasty flavours to cater for every individual’s needs. Our mission is making sure that we
operate sustainably so that we minimize unnecessary expenses and increase profitability. We
maintain consistent product quality and taste. Our vision is to make Kundai limited the
leading dairy producer in this competitive environment. We also aim to develop strategic
partnerships with reputable organizations like Dairy Board for mutual growth and innovation.
Level and types of activities to be conducted
Operational activities –milk collection
-quality testing
-processing
-product manufacturing
-packaging
Management activities –supply chain management
-inventory management
-quality control
-regulatory compliance
Support activities –human resources
-maintenance
-research and development
-marketing and sales
Environmental and sustainability activities – waste management
Health and safety activities – employee training
-health inspections
-emergency preparedness
Organizational Structure: Functional structure
An organisational framework in which a company is divided into smaller groups based on
specialised functional areas for example marketing, sales, human resources, finance and
production.
Departments and processes
Department Processes
Ice-cream Mixing and blending ingredients
Homogenization and pasteurization
Aging and ripening
Churning and freezing
Packaging
Quality control
Distribution
Milkshake Milk reception and storage
Mixing and blending with flavourings and sweeteners
Homogenization and pasteurization
Packaging
Quality control and labelling
Distribution and storage
Cheese Milk reception and storage
Pasteurization and cooling
Culturing
Coagulation
Curdling and separation
Shaping
Aging
Packaging
Quality control
Distribution and storage
Yoghurt Milk reception and storage
Pasteurization and cooling
Culturing
Incubation and fermentation
Cooling and packaging (cups, tubes)
Quality control and labelling
Distribution and storage
Assumptions Year 1
Tax Rate 20%
Inventories: opening; $30 000
Closing; $20 000
Rent: Accrued; $1 000
Prepaid; $500
Our total rent is $8 000 apportioned equally between Office and Factory
Our total electricity is $4 000 apportioned equally between Office and Factory
Depreciation is $3 000 apportioned equally between Office and Factory
Interest Received $1 000
Assumptions Year 2
Increased by 10%
Operating expenses remain the same
Interest expense and received remain the same
Dividends declared increase by 20%
Tax rate remain the same of 20%
Income statements for the years ended 31 December 2022 and 2023
Details 2022 ($) 1000 2023 ($) 1 000
Revenue 100 000 110 000
Less Cost of Goods Sold
Opening Inventory 30 000 20 000
Add cost of production 50 000 70 200
Less Closing Inventory 20 000 25 000
60 000 65 200
Gross Profit 40 000 44 800
Add Other Income
Interest Received 1 000 1 000
41 000 45 800
Operating Expenses
Depreciation of machinery 1 500 1 500
Rent (4500 -1000 + 500) 4 000 4 000
Provision for Bad debts 1 500 1 500
Electricity 2 000 2 000
Wages 8 000 8 000
Telephone bills 3 000 3 150
20 000 20 000
Operating Profit 21 000 25 800
Less Interest Paid 5 000 5 000
Less Taxation 3 200 4 160
Beginning Balance 50 000 54 800
Profit after Tax 12 800 16 640
Less Dividends (8 000) (9 600)
Net Profit 54 800 71 440
Statement of Financial Position as at 31 December 2022 and 2023
Details 2022 $ 2023 $
Non-Current Assets
Machinery 100 000 110 000
Less Depreciation 1 500 3 000
NBV 98 500 107 000
Current Assets
Inventory 20 000 25 000
Accounts Receivable (30-1.5)1000\(28.5- 28 500 27 000
1.5)1000
Prepaid Rent 500 500
Cash 20 000 25 000
69 000 77 500
167 500 184 500
Financed By:
Equity
Share Capital 50 000 47 260
Retained Earnings 54 800 71 440
104 800 118700
Current Liabilities
Accounts Payable 15 000 16 500
Accrued Rent 1 000 1 000
Dividends Payable 8 000 9 600
Non-Current Liabilities
Long Term Loan 38 700 38 700
62 700 65 800
167 500 184 500
Statement of Cash flows as at 31 December 2022 and 2023
Details 2022 $ 2023 $
Operating Activities
Net Income 12 800 16 640
Depreciation 1 500 1 500
Changes in Accounts Receivable (30 000) (3 000)
Changes in Accounts Payable 15 000 1 500
Changes in Accrued Rent 1 000
Net Cash from Operating Activities 300 16 640
Investment Activities
Purchase of Property, Machinery (100 (10 000)
000)
Net Cash from Investing Activities (100 000) (10 000)
Financing Activities
Dividends Paid (8 000) (9 600)
Long Term Debt 38 700
Net Cash from Financing Activities 30 700 (9 600)
Changes in Cash and Cash Equivalents
Beginning Cash Balance 0 (69 000)
Net Cash in Hand (69 000) 6 540
Final Cash Balance (69 000) (62 460)
INVESTMENT APPRAISAL RATIOS
PROFITABILITY RATIOS
Ratio Formula 2022 2023
Gross profit margin (gross (40000/100000) *100 (44800/110000) *100
profit/revenue)*100 = 40% = 40,73%
Net profit margin (profit before interest (21000/100000) *100 (25650/110000) *100
and tax/revenue)*100 = 21% = 23,32%
Return on assets (profit before interest (21000/167500) *100 (25650/185550) *100
and tax/total = 12,53% = 13,82%
assets)*100
Return on capital (profit before interest (21000/143500) *100 (25650/158750) *100
employed and tax/capital = 14,63% = 16,16%
employed)*100
Return on equity (profit after interest (12800/104800) *100 (16490/120050) *100
and tax and = 12.21% = 13,74%
preference dividend/
ordinary
shareholder’s equity)
*100
LIQUIDITY RATIOS
Ratio Formula 2022 2023
Current ratio Current 69000/24000 79000/27100
assets/current = 2,87 = 2,92
liabilities
Acid test ratio (current assets- (69000-20000)/24000 (79000-25000)/27100
inventory)/current = 2,04 = 1,99
liabilities
EFFICIENCY RATIOS
Ratio Formula 2022 2023
Inventory turnover Cost of sales/average 60000/[(30000+20000)/2] 65200/
inventory = 2,4times [ (20000+25000)/2]
= 2,9times
Non-current asset Revenue/non- 100000/100000 110000/110000
turnover current assets =1 =1
Current asset Revenue/current 100000/69000 110000/79000
turnover assets = 1,45 = 1,39
Total assets Revenue/total assets 100000/167500 110000/185850
turnover = 0,6 = 0,59
INVESTMENT RATIOS
Ratio Formula 2022 2023
Earnings per share Profit after tax and 12800/50000 16490/58360
preference = 0,25c = 0,28c
dividend/number of
issued ordinary
shares
Dividend per share Ordinary share 8000/50000 9600/58360
dividend/number of = 0,16 = 0,16
issued ordinary
shares
Dividend cover Earnings per 0,25/0,16 0,28/0,16
share/dividend per = 1,56 = 1,75
share
Dividend payout (dividend per (0,16/0,25) *100 (0,16/0,28)
ratio share/earnings per 65% = 57,14%
share)*100
FINANCIAL POSITION RATIOS
Ratio Formula 2022 2023
Solvency Total assets/ total 167500/62700 185850/65800
debt = 2,67 = 2,82
Gearing Fixed return 38700/(104800+38700)]*100 [39700/
capital/(equity = 26% (120050+38700)]
+fixed return *100
capital) *100 = 24,38%
Equity ratio Fixed return (38700/104800)*100 (39700/120050)* 100
capital/ordinary = 36,93% = 33,1%
shareholder’s
equity)*100
Interest coverage (Profit before 21000/5000 25650/5000
interest and = 4,2 = 5,13
tax/interest charges
Cost items
Manufacturing
Fixed costs: those costs which remain constant at any level of output
Depreciation
Rent
Variable costs: these change as output changes
Direct materials
Electricity
Direct labour
Non-manufacturing
Fixed costs:
Depreciation
Rent
Variable costs:
Telephone bills
THE PRODUCTION DEPARTMENTS INCUR THE FOLLOWING COSTS DURING
OPERATIONS
Mixing and Homogenization Aging Packaging Total
blending and and
pasteurization distribution
Direct labour $2000 $1000 $1500 $1500 $6000
Direct $4500 $5000 $1000 $500 $11000
materials
The expected units for our products are as follows:
Ice-cream 500
Milkshake 200
Cheese 100
Yoghurt 150
the unit selling price for all of our products is $1
Note: In the production department we assume that all that is produced is sold
ANALYSING AND DETERMINING COST BEHAVIOR
Variable costs
The firm has variable costs which are those costs which change directly as output changes.
Kundai private limited incurred direct labour costs of $4 000 and direct materials of $8 000
and the firm produced 950 units of our products.
Fixed costs
The firm has fixed costs which are those costs which do not change with any business
activity. Kundai private limited had depreciation on plant and machinery and rent. This can
be illustrated by the graph below
ASSIGNING COSTS TO COST OBJECTS
Basis of Mixing and Homogenizatio Aging Packaging and Total
apportionment Blending n and Distribution
Pasteurization
Cost of 25 000 25 000 25 000 25 000 25 000
machine($)
Floor area 1 000 1 000 1 000 1 000 1 000
(M2)
Labour hours 950 400 600 750 2700
(Hrs)
15 30 20 30 95
Number of
employees
overheads Base of Mixing Homogenization Aging Packaging Total
allocation and and and
blending pasteurization Distribution
$ $ $ $ $
Depreciation: Machine 375 375 375 375 1 500
plant cost
And
equipment
OVERHEADS ABSORPTION METHODS: Compare traditional vs ABC
Activity based costing [ABC] is a costing technique whereby we look at the activities
performed to produce products. It first traces costs to activities and then to products whereas
traditional costing allocates factory overheads to products based on the production volume
consumed during operation
ABC puts cost pools into consideration which correspond to major activities and in each cost
pool cost are caused by a single cost driver while traditional puts considers that costs in each
cost pool are heterogeneous meaning there are cost of many major processes not single cost
drivers
The ABC allocates cost to products, services and other cost objects from the costs pools using
allocation bases corresponding to the cost drivers of activity costs while traditional allocates
cost to products using volume based allocation for example machine hours and floor area
ABC estimates cost of many cost objects while traditional estimates cost of a single cost
object for example unit of products
ABC is expensive to maintain and implement as compared to traditional system
Volume forecasts and cost structure
Uncertainties in level of output estimated in the above section
Uncertainties in levels of output are limitations that may lead to Kundai private limited not
being able to meet budgeted levels of ice-cream which is 2 000 units, milkshake which is 800
units, cheese which is 400 units and yoghurt which has 600 units. These uncertainties can be
classified into two categories which are external and internal
External
Availability of raw materials:
There could be a shortage of raw materials maybe due to disease outbreaks for example foot
and mouth affecting the amount of milk from our cattle. This can lead to decrease in
production thus making it difficult to meet the desired output. Low supply of raw materials
such as flavourings.
Fluctuation of prices
Random changes in price of raw materials such as sweeteners for example sugar. Purchase
prices increase may also lead to Kundai private limited not being able to purchase the
budgeted raw materials hence also being a limitation to the firm meeting its budgeted output
of dairy products.
Internal
Plant Capacity
The levels of output produced by plant and machinery at Kundai private limited at a given
period may not able to meet the budgeted output hence this also being a limitation.
Workforce motivation
A less motivated workforce may decrease level of production hence there is decrease in levels
of output. Low motivated workforce may also lead to increased protests and other industrial
actions which may hinder production and lead to a decrease in output and this also being a
limitation to Kundai private limited meeting budgeted output.
TOTAL REVENUE $3 800
TOTAL VARIABLE COST $1 900
TOTAL FIXED COSTS $760
TOTAL UNITS PRODUCED 3 800
The firm wishes to produce the following units per quater:
ice-cream 500
Milkshake 200
Cheese 100
yoghurt 150
The selling price of ice-cream $1/unit
Yoghurt $1/unit
Milkshake $1/unit
Cheese $1/unit
Our budgets are prepared on the assumption that all that is produced is sold
Sales budgets
Jan-Mar Apr-Jun July-Sep Oct-De Total
Selling price 1 1 1 1
per unit($)
Units sold 950 950 950 950 3800
950 950 950 950 3800
Production budgets
Ice-cream Yoghurt Cheese Milkshake
Opening ----------- ------------- ----------------
inventory
Production 2000 600 400 800
1500 500 400 800
Sales
Closing 500 100 ----------- ------------------
inventory
Raw material budgets
Ice-cream Milkshake Yoghurt Cheese
Production in 2000 600 400 800
units
kgs/unit 2 3 2 1
$/kg 2 2 2 2
Cost of 8000 3600 1600 1600
materials$
The company prepared the budgets for the year per quater ending 31 December 2022
Month Sales purchases Insurance Rent
Jan-Mar 13380 8000 400 750
Apr-Jun 10400 3600 400 750
Jul-Sep 9600 1600 400 750
Oct-Dec 5120 1600 400 750
Notes
60% of sales are on cash sale while 40% are on credit.
All amounts round off to the nearest dollar
All purchases are made on credit terms and are paid for after 4 months of purchase.
Wages are paid on the month in which they inquired
All other expenses are paid in the month in which they are inquired
Dividends are paid in equal quarterly instalments
Interest is received per quarter
Cash budget
January - March April - June July - September October - December
Receipts
Cash sales 8000 6000 6000 2800
Credit sales 5380 4400 3600 2320
Interest received 1000 1000 1000 1000
Total receipts 14380 10400 10600 6120
payments
purchases 8000 3600 1600 1600
Insurance 400 400 400 400
Rent 750 750 750 750
Dividends paid 2000 2000 2000 2000
Total payments 11150 6750 4750 4750
Net receipts 3230 3650 5850 1370
Opening balance (1000) 2230 5880 11730
Closing balance 2230 5880 11730 13100
Kundai Ltd Budgeted income statement for the year ended 31 December 2022
$ $
Sales 38500
Less cost of sales
Opening inventory --------------------------
Add purchases 14800
Less closing inventory (2400) (12400)
Gross profit 26100
Add other income: interest 4000
received
30100
Less operating expenses
insurance 1600
Rent 3000 (4600)
Operating profit 25500
Less dividends paid (8000)
Retained earnings 17500
