CAS3701 Assignment 12 (Detailed Answers & Solutions) Due 4 OCTOBER 2024

Questions QUESTION 1 1. INTRODUCTION Rhino Cellular Ltd (“RhinoCell”) is a South African based manufacturer and retailer of low-cost smart phones. RhinoCell was founded in 2011 in response to the uptake of smart phones in the South African market. The company quickly saw a market opportunity for a low-cost smart phone that provides a basic version of features when compared to other high-end smart phones manufactured in South Africa and other African markets. RhinoCell has a 31 August financial year-end. The board of RhinoCell expects to authorise the annual financial statements of RhinoCell for issue on 14 December 2023. The key to RhinoCell’s competitive advantage is its locally based supply chain. RhinoCell manufactures its products at the Maluti-A-Phofung Special Economic Zone (“SEZ”) in Harrismith, Free State Province. The Maluti-A-Phofung SEZ is a key logistic link by road and rail to South Africa’s economic and industrial heartland, with key links to Gauteng, the Port of Durban, and the Bloemfontein-Cape Town route. RhinoCell sources its main materials from South Africa and other African countries and employs workers from the Harrismith community. This strategy allows RhinoCell to procure materials at competitive prices and pay lower wages to its employees, as the cost of living in Harrismith is lower when compared to urban centres such as Johannesburg, Durban, and Cape Town. 2. MARKETING AND SALES STRATEGY The smart phone industry is dominated by a few international companies that manufacture their products mainly in South-East Asia and the Americas. The strong expansion program by these companies, coupled with the rollout of 5G internet, has allowed global consumers to make increased use of the internet in their daily lives. RhinoCell has identified Sub-Saharan Africa as an underdeveloped market for smart phones and believes that low priced smart phones are the industry future, considering the affordability constraints that plague consumers in the region. According to the Global Systems for Mobile Communications Association (GSMA), 49% of consumers in the Sub-Saharan African region have access to 4G mobile technology, whilst only 17% of consumers have access to 3G mobile technology. The lack of penetration in the Sub- Saharan African region provides RhinoCell with a strong opportunity to capture a sizeable portion of the market. RhinoCell’s Africa expansion strategy includes a newly developed smart phone, named “EnduroPro94”, which has a 48-hour long battery life and will be capable of utilising 5G mobile technology. The longer battery life is in response to the electricity challenges that affect most of SubSaharan Africa. EnduroPro94 will be targeted at the lower end of the market. RhinoCell initially plans to sell the smart phone for R1 300 (excluding VAT) in Sub-Saharan Africa. 3. MANUFACTURING AND SUPPLY CHAIN The product's battery is the key to manufacturing a smart phone with a battery life of 48 hours. In its earlier products, RhinoCell used nickel-metal hydride batteries sourced from China. These batteries made the smart phones bulkier as they had low energy density and only allowed eight hours of battery life. The battery for the EnduroPro94 will be manufactured at RhinoCell’s Harrismith facility. It will use lithium-ion batteries that are lighter in weight and higher in energy density, meaning they can store more energy in a smaller space. The main material used in lithium-ion batteries is cobalt, sourced from the Democratic Republic of Congo (DRC), Russia and Australia, with the DRC making up 70% of global cobalt production. On 16 August 2023, the management of RhinoCell had received and signed a proposed agreement with a businessperson, based in the Lubumbashi region in the South of the DRC, for the supply of cobalt to manufacture lithium-ion batteries to be used in the EnduPro94. The cobalt will be purchased at a forty percent discount on the ruling international cobalt price. The businessperson sources cobalt from small-scale and artisanal miners in the region. The miners deliver the cobalt to the businessperson’s premises in Lubumbashi daily, and prices are paid based on the grade of the cobalt and the daily Lubumbashi regional cobalt price. The management of RhinoCell believes that the competitive input price of cobalt and the use of minimum wage workers sourced from the region surrounding Harrismith will allow RhinoCell to meet its R1 300 selling price target for the Enduro94. RhinoCell will be able to maintain a gross profit percentage margin of 30% on the sale of each EnduroPro94. 4. MANUFACTURING COSTING AND PLANNING The production of each EnduroPro94 smart phone requires various materials and inputs. The table below lists the cost items and current monthly resource constraints for each of these materials and inputs in the 2023 financial year: Material/Input Cost per unit (Rands) Resource constraint per month Cobalt R150 per kg 2 000 kg Other Metals R100 per kg 3 000 kg Labour R80 per hour 10 000 hours Other Materials R50 per unit 5 000 units RhinoCell allocates manufacturing overheads to its manufactured products based on labour hours. For the 2023 financial year, the budgeted total manufacturing overheads amount to R2.4 million and the total budgeted labour hours amount to 120 000 hours. Each EnduroPro94 Sm