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Question 1
Helang Bhd
has been operating at 80% of its 100,000 unit per year capacity for
manufacturing its product. A chain store has offered to buy an additional
10,000 units at RM22 each and sell them in an area where Helang Bhd currently
has no outlet. Consider the following facts:
Cost per unit (RM) Total Cost (RM)
Costs at 80% capacity
Direct materials 8.00 640,000
Direct labour 7.00 560,000
Total (fixed and variable) overhead 12.50 1,000,000
Total 27.50 2,200,000
In producing
the 10,000 additional units, fixed overhead costs would remain at their present
level but incremental variable overhead costs of RM3.00 per unit would be
incurred. Should the company accept or reject this order?
Question 2
All Sports Inc
manufactures basketball for the National Basketball Association (NBA). For the
first 6 months of 2000, the company reported the following operating results
while operating at 90% of plant capacity and producing 90,000 units.
Amount (RM)
Sales 4,500,000
Costs of goods sold 3,600,000
Selling and administrative expenses 360,000
Net income 540,000
Fixed costs
for the period were cost of goods sold RM900,000 and selling and administrative
expenses RM180,000.
In July, All
Sports Inc. receives a special order of 10,000 basketballs at RM34 each from
the Italian Basketball Association (IBA). Acceptance of the order would
increase variable selling and administrative expense RM0.35 per unit because of
shipping costs but would not increase fixed costs and expenses.
Required:
a. Prepare an incremental
analysis for the special order.
b. Should all Sport Inc
accept the special order?
c. What is the minimum
selling price on the special order to produce net income of RM2.50 per ball?
