Question

ACTIVITY 2 1. Mr Nkomo lives in Three Rivers, in the Emfuleni municipality and uses prepaid electricity that is sold to customers at a VAT inclusive rate. The table below shows the cost of prepaid units of electricity. BLOCK UNITS (kWh) 2 3 4 0-50 51-350 351-600 >600 *Prepaid electricity: Paying for electricity before using it. *VAT = 15% *The municipality buys electricity from Eskom at an average VAT inclusive price of R1,33 per kWh. 1.1. State any two reasons why it is an advantage for the municipality to sell prepaid electricity. Verify, by showing ALL calculations, If his claim is VALID. You may use the formula: % Profit = (4) 1.2. Determine the number of units Mr Nkomo received when he bought prepaid electricity for R68,02. (3) 1.3. How much will Mr Nkomo pay if he wanted to buy 310 kWh of electricity? (3) 1.4. Mr Nkomo stated that the percentage profit the municipality makes when a customer buys 290 kWh of electricity is more than 34%. RATE c/kWh (Including vat) sell price for the units-cost price for the units 144,72 186,06 261,87 308,37 ✓ 1000z IC) 2​

Answer 1

Explanation:

1.1. Advantages of Selling Prepaid Electricity

Two advantages of selling prepaid electricity are:

a) Reduced costs for the municipality: Prepaid meters eliminate the need for the municipality to send meter readers to each property and manually read the meter. This can save the municipality time and money.

b) Improved cash flow: By receiving payment before the electricity is used, the municipality can improve its cash flow as it will have funds available to purchase more electricity.

1.2. Number of Units Mr Nkomo Received When He Bought Prepaid Electricity for R68,02

The rate per kWh including VAT is R1,33. To determine the number of units Mr Nkomo received, we can use the formula:

Units = Amount / Rate

Units = R68,02 / R1,33

Units = 51.04 kWh

So, Mr Nkomo received 51.04 kWh of electricity when he bought prepaid electricity for R68,02.

1.3. Cost of 310 kWh of Electricity

The rate per kWh including VAT is R1,33. To determine the cost of 310 kWh of electricity, we can use the formula:

Cost = Units * Rate

Cost = 310 kWh * R1,33

Cost = R411,30

So, Mr Nkomo will have to pay R411,30 for 310 kWh of electricity.

1.4. Percentage Profit the Municipality Makes When a Customer Buys 290 kWh of Electricity

To determine the percentage profit the municipality makes when a customer buys 290 kWh of electricity, we need to calculate the cost price and the selling price of the electricity. The cost price of electricity is R1,33 per kWh. The selling price is given in the table as R144,72 for 2-50 kWh, R186,06 for 51-350 kWh, R261,87 for 351-600 kWh, and R308,37 for over 600 kWh.

Since the cost price is R1,33 per kWh and the selling price is different for different ranges of units, we need to calculate the cost and selling price for each range of units and find the average.

For 2-50 kWh:

Cost = 2-50 kWh * R1,33

Cost = 50 kWh * R1,33

Cost = R66,50

Selling price = R144,72

Profit = Selling price - Cost

Profit = R144,72 - R66,50

Profit = R78,22

Percentage profit = (Profit / Cost) * 100

Percentage profit = (R78,22 / R66,50) * 100

Percentage profit = 17.7%

For 51-350 kWh:

Cost = 51-350 kWh * R1,33

Cost = 350 kWh * R1,33

Cost = R466,50

Selling price = R186,06

Profit = Selling price - Cost

Profit = R186,06 - R466,50

Profit = R29,56

Percentage profit = (Profit / Cost) * 100

Percentage profit = (R29,56 / R466,50) * 100

Percentage profit = 6.3%

For 351-600 kWh:

Cost = 351-600 kWh * R1,33

Cost = 600 kWh * R1,33

Cost = R798,00

Selling price = R261,87

Profit = Selling price - Cost

Profit = R261,87 - R798,00

Profit = -536,13

Percentage profit = (Profit / Cost) * 100

Percentage profit = (-536,13 / R798,00) * 100

Percentage profit = -67.3%

For over 600 kWh:

Cost = over 600 kWh * R1,33

Cost = R1,33 * 1000

Cost = R1330,00

Selling price = R308,37

Profit = Selling price - Cost

Profit = R308,37 - R1330,00

Profit = -1021,63

Percentage profit = (Profit / Cost) * 100

Percentage profit = (-1021,63 / R1330,00) * 100

Percentage profit = -76.7%

The average percentage profit for the municipality is calculated by finding the total profit and total cost for each range of units and then dividing the total profit by the total cost.

For the range 2-50 kWh, the total profit is R78,22 and the total cost is R66,50, so the average percentage profit is (R78,22 / R66,50) * 100 = 17.7%.

For the range 51-350 kWh, the total profit is R29,56 and the total cost is R466,50, so the average percentage profit is (R29,56 / R466,50) * 100 = 6.3%.

For the range 351-600 kWh, the total profit is -536,13 and the total cost is R798,00, so the average percentage profit is (-536,13 / R798,00) * 100 = -67.3%.

For the range over 600 kWh, the total profit is -1021,63 and the total cost is R1330,00, so the average percentage profit is (-1021,63 / R1330,00) * 100 = -76.7%.

The average percentage profit for the municipality for the four ranges of units is calculated as follows:

Average percentage profit = (17.7% + 6.3% - 67.3% - 76.7%) / 4

Average percentage profit = -34.05%

Therefore, Mr Nkomo's claim that the percentage profit the municipality makes when a customer buys 290 kWh of electricity is more than 34% is NOT VALID.