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QUESTION $1$

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.

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 $5$G 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 $4$G mobile technology, whilst only

$17\%$ of consumers have access to $3$G 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

"EnduroPro$94",$ which has a $48-$hour long battery life and will be capable of utilising $5$G mobile

technology. The longer battery life is in response to the electricity challenges that affect most of

Sub$-$Saharan Africa. EnduroPro$94$ will be targeted at the lower end of the market. RhinoCell

initially plans to sell the smart phone for R$1300($excluding VAT$)$ in Sub$-$Saharan Africa.

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 EnduroPro$94$ 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 EnduPro$94.$ 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 R$1300$ selling price target for the Enduro$94.$ RhinoCell will be able to maintain a gross

profit percentage margin of $30\%$ on the sale of each EnduroPro $94.$

MANUFACTURING COSTING AND PLANNING

The production of each EnduroPro$94$ 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:

RhinoCell allocates manufacturing overheads to its manufactured products based on labour

hours.

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