(a) Fazer Company makes three models of phasers: Stunner, Double-Set and Mega-

Power. Information on the three products is given below as Table Q2(a) :

Table Q2 (a): Cost Information for Three Models of Phasers Item Stunner

(RM)

3 CONFIDENTIAL

Double-Set (RM)

Mega-Power (RM)

Total (RM) Sales 300,000 500,000 200,000 1,000,000 Variable Expenses 150,000 200,000 140,000 490,000 Contribution Margin 150,000 300,000 60,000 510,000 Fixed Expenses 120,000 225,000 90,000 435,000 Net Income 30,000 75,000 (30,000) 75,000

Additional information:

Fixed expenses consist of RM300, 000 of common costs allocated to the three product based on relative sales. The common cost will be incurred regardless of how many models are produced.

The common cost of RM300,000 will be allocated to the remaining product line according to their relative sales if a model is discontinued.

Additional fixed expenses are allocated to :

o Stunner - RM30,000 o Double Set - RM75,000 o Mega Power -RM30,000

The additional fixed expenses on the eliminated model will be absorbed in the proportion of 50:50 for the remaining model.

The marketing executive of the company feels that Mega-Power line should be discontinued to increase the company's net income.

(i) Analyze the net income by product line and in total for Fazer Company

if the company discontinues Mega-Power product line.

(7 marks)

(ii) Recommend to Fazer Company whether to continue or eliminate the

Mega-Power product line, based on the analysis in Q2(a)(i).

(4 marks)

CONFIDENTIAL BPC 32603

(b) Mamilow Company makes a cologne called Irresistible. The standard cost for one

bottle of Irresistable is shown in Table Q2(b) below :

Table Q2(b): Standard Cost for One Bottle Manufacturing Cost Elements Standard

Quantity X Price(RM) = Cost(RM) Direct material 6 oz X 0.90 = 5.40 Direct labour 0.5 hrs X 12.00 = 6.00 Manufacturing overhead 0.5 hrs X 4.80 = 2.40

Total Cost 13.80

During the month, the following transactions occurred in the manufacturing of 10,000 bottles of Irresistible.

58,000 ounces of material were purchased at RM1.00 per ounce.

All the materials purchased were used to produce the 10,000 bottles of Irresistible

4,900 direct labour hours were consumed at a total cost of RM56,350

Variable manufacturing overhead and fixed overhead incurred were RM15,000 and RM10,400, respectively.

The manufacturing overhead rate of RM4.80 is based on the normal capacity of 5,200 direct labour hours. The total budget at this capacity is RM10,400 fixed and RM14,500 variable.

(i) Compute the total variance.

(ii) Compute the direct material price variance.

(iii) Compute the direct labour quantity variance.

(iv) State ONE (1) purpose of computing the overhead volume variance.

(v) Discuss TWO (2) reasons for unfavorable direct manufacturing labor

efficiency variance.