QUESTION 1 110 marks Azania Engineering (Pty) Ltd (“Azania”) manufactures and su pplies gener ator sets to customers in the hospit ality, retail, telecommunications and health care industries. Over the

QUESTION 1 110 marks Azania Engineering (Pty) Ltd (“Azania”) manufactures and su pplies gener ator sets to customers in the hospit ality, retail, telecommunications and health care industries. Over the past 18 months the  demand  for  generat or  sets  (“ge nsets”)  has increased significantly  b ecause  of  t he  frequent power  outages  experienced  in  major  cities in South  Africa  and  the  perception  th at  electricity demand will outstrip sup ply in the country over the next five to ten years. Gensets are primaril y used as back-up power sources wh en the electr icity supply is disrupted. Azania produces diese l powered gensets at its f actory situated in Wadeville, Johann esburg. The sales and marketing, pr ocurement, finance and administrative functions are lo cated in the same building. Th e business was founded in 1985 by Mr Diggory Lewis and has grown into one of the leading  sup pliers  of  die sel  genset s.  Mr  Lewis  retired  in  20 05  and  his  f amily  trust  still  retain s  a 100% share holding in A zania. The business is ru n by the executive direct ors, who ha ve all been employed b y Azania for more than ten years. The major components, by value, of a genset are the diesel e ngine, altern ator, sheetwork (meta l frames  or  c anopies  in  which  gensets  are  housed)  and  the  electrical control  panel.  Azania  has always impo rted diesel e ngines from various European suppliers renowned for the reliability and quality of en gines supplied. Alternators, electrical control panel components and sheetwork are sourced fro m local sup pliers. A zania design s gensets u sing computer assisted de sign software which  it  then  uses  for  the  assembly  of  the  components.  All  assembly  operations,  includin g electrica l wir ing and instr umentation work, are performed at the Wadeville factory. Azania  prod uces  custo m-built  gensets  according  to  specif ic  requirements  of  cust omers.  This strategy,  as  opposed  t o  building standard  g ensets,  has  differentiat ed  Azania from  other suppliers   in South   Afri ca.   The   company   has   found   tha t   most   customers   have   unique requirements  regarding  power  out put,  genset desi gn,  co ntrol  systems,  sound  shields,  et c., which  are  g enerally  not  met  by  standard  genset  product  r anges.  While  some  sup pliers  do sell standard  gensets,  this  invariably means  that  their  customers  either  acquire  gensets  which produce too much power for their ne eds (and incur unnecessary expense ) or that there is some aspect of th e standard g enset desig n that does not suit their requirements. In the industries in which most of th e company’ s customers operate, back-up power is a critical requirement. Customers accordingly place a high value on reliable and high quality gensets and tend  to  be less  price  sensitive  in  procurem ent  decisions. Azania  has  many  long  standing custom ers. Because  of the  tremendous  increase  in  market  demand  for  gensets,  f actory  staff  has  worked extensive overtime at the Azania factory duri ng the months of July, August and Sept ember. The company  is  considering expanding  its  premises and  employing  more  f actory  staff  to  increase capacity. Extracts  from  the  deta iled  management  acc ounts  of  Azania  for  the  financial year  ende d 31 December  2005  and the  nine  months  ende d  30  September  2006,  together  with  the  revised budget for t he year ending 31 December 2006, are summari sed below:

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