Question 2
(a) Mitigating Strategies
for Key Risks
[6 marks]
Mitigating Strategy
Key Risk Mitigating Strategy 1
2
Diversify the supplier
Hold safety
base: Source carbon-
stock: Maintain a
1. Dependency on a single fibre and EVA foam
buffer inventory of
Spanish supplier for key from multiple suppliers
critical raw materials
raw materials in different regions to
to cover short-term
reduce supply-chain
supply interruptions.
disruption risk.
Differentiate through Form strategic
quality and partnerships: Collab
branding: Invest in R&D orate with local
to improve product sports clubs, schools,
2. Increasing foreign
features and launch or leagues to secure
competition
marketing campaigns exclusive supply
highlighting local agreements and
craftsmanship and build customer
reliability. loyalty.
, Implement a crisis
Develop a broader management
marketing mix: Reduce plan: Establish
dependency on protocols to quickly
3. Over-reliance on
individuals by increasing address reputational
celebrities/ambassadors
digital marketing, social issues, including
for marketing
media engagement, and clear communication
community-driven strategies and
promotions. alternative brand
ambassadors.
(b) Budgeted Net Profit per Racket [6 marks]
Given Information
External selling price: R680 per racket
Raw material: 500g per racket at R378/kg → R189 per racket
Import duty: 5% on raw material cost → 5% × R189 = R9.45
Handle/grip: R65 per racket
Packaging/branding: R18 per racket
Direct labour: 90 minutes at R45/hour → (90/60) × R45 = R67.50 per racket
Machine time: 192 minutes = 3.2 hours
Normal capacity: 450,000 machine hours per year
Budgeted fixed manufacturing overheads: R12,000,000
Cost Calculations
Cost Component Calculation Amount per Racket
Fixed overhead absorption R12,000,000 ÷ 450,000 R26.6667 per machine
rate hours hour
, Fixed manufacturing overhead
3.2 hours × R26.6667 R85.33 (rounded)
per racket
Variable manufacturing cost R189 + R9.45 + R65 + R18 +
R349.95
per racket R67.50
Full manufacturing cost per Variable R349.95 + Fixed
R435.28
racket R85.33
Distribution Costs
Total distribution costs: R4,500,000
Fixed distribution costs: R1,250,000 (not allocated)
Variable distribution cost: (R4,500,000 – R1,250,000) ÷ 130,000 external rackets = R25 per racket
Note: Only applicable on external sales
Net Profit Calculations
(i) Internal Sale (to Court Division)
Item Amount
Transfer price (Full
R435.28
manufacturing cost)
Less: Manufacturing cost (R435.28)
Net profit per racket R0
(ii) External Sale
Item Amount
Selling price R680.00
Less: Manufacturing cost (R435.28)
Less: Variable distribution cost (R25.00)
Net profit per racket R219.72
(a) Mitigating Strategies
for Key Risks
[6 marks]
Mitigating Strategy
Key Risk Mitigating Strategy 1
2
Diversify the supplier
Hold safety
base: Source carbon-
stock: Maintain a
1. Dependency on a single fibre and EVA foam
buffer inventory of
Spanish supplier for key from multiple suppliers
critical raw materials
raw materials in different regions to
to cover short-term
reduce supply-chain
supply interruptions.
disruption risk.
Differentiate through Form strategic
quality and partnerships: Collab
branding: Invest in R&D orate with local
to improve product sports clubs, schools,
2. Increasing foreign
features and launch or leagues to secure
competition
marketing campaigns exclusive supply
highlighting local agreements and
craftsmanship and build customer
reliability. loyalty.
, Implement a crisis
Develop a broader management
marketing mix: Reduce plan: Establish
dependency on protocols to quickly
3. Over-reliance on
individuals by increasing address reputational
celebrities/ambassadors
digital marketing, social issues, including
for marketing
media engagement, and clear communication
community-driven strategies and
promotions. alternative brand
ambassadors.
(b) Budgeted Net Profit per Racket [6 marks]
Given Information
External selling price: R680 per racket
Raw material: 500g per racket at R378/kg → R189 per racket
Import duty: 5% on raw material cost → 5% × R189 = R9.45
Handle/grip: R65 per racket
Packaging/branding: R18 per racket
Direct labour: 90 minutes at R45/hour → (90/60) × R45 = R67.50 per racket
Machine time: 192 minutes = 3.2 hours
Normal capacity: 450,000 machine hours per year
Budgeted fixed manufacturing overheads: R12,000,000
Cost Calculations
Cost Component Calculation Amount per Racket
Fixed overhead absorption R12,000,000 ÷ 450,000 R26.6667 per machine
rate hours hour
, Fixed manufacturing overhead
3.2 hours × R26.6667 R85.33 (rounded)
per racket
Variable manufacturing cost R189 + R9.45 + R65 + R18 +
R349.95
per racket R67.50
Full manufacturing cost per Variable R349.95 + Fixed
R435.28
racket R85.33
Distribution Costs
Total distribution costs: R4,500,000
Fixed distribution costs: R1,250,000 (not allocated)
Variable distribution cost: (R4,500,000 – R1,250,000) ÷ 130,000 external rackets = R25 per racket
Note: Only applicable on external sales
Net Profit Calculations
(i) Internal Sale (to Court Division)
Item Amount
Transfer price (Full
R435.28
manufacturing cost)
Less: Manufacturing cost (R435.28)
Net profit per racket R0
(ii) External Sale
Item Amount
Selling price R680.00
Less: Manufacturing cost (R435.28)
Less: Variable distribution cost (R25.00)
Net profit per racket R219.72
