Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 49 views

    Q&A Chap11

    Uploaded by

    IZZAH NUR ATHIRAH BINTI AZLI Moe
    Mandy Enterprise is currently manufacturing lampshades at their production capacity of 50,000 units per year. The total cost of manufacturing is RM700,000 annually versus purchasing them for RM675,000 from a supplier. However, if the production capacity was used to make an additional RM40,000, it would be more cost effective to purchase the lampshades. Shazza Enterprise produces kitchen cabinets. They received a special order for 1,000 cabinets at RM165 each but it would cost RM175 per cabinet to produce. As the selling price is less than the cost, Shazza should reject the order to avoid losing RM10,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Q&A Chap11

    Uploaded by

    IZZAH NUR ATHIRAH BINTI AZLI Moe
    49 views2 pages
    Mandy Enterprise is currently manufacturing lampshades at their production capacity of 50,000 units per year. The total cost of manufacturing is RM700,000 annually versus purchasing them for RM675,000 from a supplier. However, if the production capacity was used to make an additional RM40,000, it would be more cost effective to purchase the lampshades. Shazza Enterprise produces kitchen cabinets. They received a special order for 1,000 cabinets at RM165 each but it would cost RM175 per cabinet to produce. As the selling price is less than the cost, Shazza should reject the order to avoid losing RM10,000.

    Original Title

    Q&A Chap11 (2)

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Mandy Enterprise is currently manufacturing lampshades at their production capacity of 50,000 units per year. The total cost of manufacturing is RM700,000 annually versus purchasing them for RM675,000 from a supplier. However, if the production capacity was used to make an additional RM40,000, it would be more cost effective to purchase the lampshades. Shazza Enterprise produces kitchen cabinets. They received a special order for 1,000 cabinets at RM165 each but it would cost RM175 per cabinet to produce. As the selling price is less than the cost, Shazza should reject the order to avoid losing RM10,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    49 views2 pages

    Q&A Chap11

    Uploaded by

    IZZAH NUR ATHIRAH BINTI AZLI Moe
    Mandy Enterprise is currently manufacturing lampshades at their production capacity of 50,000 units per year. The total cost of manufacturing is RM700,000 annually versus purchasing them for RM675,000 from a supplier. However, if the production capacity was used to make an additional RM40,000, it would be more cost effective to purchase the lampshades. Shazza Enterprise produces kitchen cabinets. They received a special order for 1,000 cabinets at RM165 each but it would cost RM175 per cabinet to produce. As the selling price is less than the cost, Shazza should reject the order to avoid losing RM10,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 2

    OLIMPIAD 5

    Topic 11: Cost relevant for decision making

    Question 1

    Mandy Enterprise has been manufacturing its own lampshades for its table lamps. The company is
    currently operating at 100% of capacity. Variable manufacturing overhead is charged to production
    at the rate of 50% of direct labour cost. The direct materials and direct labour cost per unit to make
    the lampshades are RM4 and RM6, respectively. Normal production is 50,000 table lamps per year.

    A supplier offers to make the lampshades at a price of RM13.50 per unit. If Mandy Enterprise accepts
    the supplier’s offer; all variable manufacturing costs will be eliminated, but the RM50,000 of fixed
    manufacturing overhead currently being charged to the lampshades will have to be absorbed by
    other products.

    a. Should Mandy buy the lampshades? [ 7 marks]


    b. Would your answer be different in (a) if the productive capacity released by not making the
    lampshades could be used to produce income RM40, 000? [ 3 marks]

    Question 2

    Shazza Enterprise produces kitchen cabinets for homebuilders across the western Malaysia. The cost
    of producing 5,000 cabinets is as follows:

    RM
    Material 500,000
    Labour 250,000
    Variable overhead 100,000
    Fixed overhead 400,000
    Total 1,250,000

    Shazza Enterprise also incurs selling expenses of RM20 per cabinet. Zahar Enterprise has offered
    Shazza Enterprise RM165 per cabinet for a special order of 1,000 cabinets. The cabinets would be
    sold to homebuilders in the eastern Malaysia and thus would not conflict with Shazza Enterperise
    current sales. Selling expenses per cabinet would be only RM5 per cabinet. Shazza Enterprise has
    available capacity to do the work.

    Sould Shazza Enterprise accept the special order? Why or why not? [ 7 marks]
    ANSWERS

    Question 1

    a.

    Make Buy Net Income


    increase/d
    ecrease
    Direct materials ( 50,000√ x RM4.00√) 200,000√ 200,000√
    Direct Labour ( 50,000√ x RM6.00√) 300,000√ 300,000√
    Variable manufacturing costs ( 300,000√ x 50%√) 150,000√ 150,000√
    Fixed manufacturing costs 50,000√ 50,000√ 0√
    Purchase price (50,000√ x RM13.50√) 0 675,000√ (675,000)√
    Total annual cost 700,000√ 725,000√ (25,000)√
    Mandy should not purchase the lampshades. √ As indicated by the incremental analysis, it would cost
    the company RM25,000 more to purchase the lampshades. √

    b. Yes, √ by purchasing the lampshades, a total cost saving of RM15,000 √will result as shown
    below :

    Make Buy Net Income


    increase/decr
    ease
    Total annual cost (from (a)) 700,000√ 725,000√ (25,000)√
    Opportunity cost 40,000√ 0√ 40 000√
    Total cost 740,000√ 725,000√ 15,000√

    35 √ x ½ = 17.5 marks

    Question 2

    Reject Accept Net Income


    increase/decrease
    Sales (165 √ x 1000 √ ) 165 000√ 165 000√
    (-) Material (100 √ x 1000 √) (100 000)√ (100 000)√
    Labour (50 √ x 1000 √) (50 000)√ (50 000)√
    Variable (20 √x 1000 √) (20 000)√ (20 000)√
    Selling exp (5 √ x 1000 √) (5 000)√ (5 000)√
    Profit 0 (10 000)√ (10,000) √
    Shazza should reject the offer. √ The incremental benefit of RMRM165 per cabinet is less than the
    incremental cost of RM175. By accepting the order, Shazza net income would actually decline by
    RM10,000. √√

    25√ x ½ = 12.5 marks

    You might also like