BigBoys RC Toys; trading as BigBoysToya. manulactures radio controlled toy cars and airplanes. Various models are manufactured. e.g. electric engine models. fuel engine models as well as various sizes and types of toy cars and airplanes. However; the electrical components [excluding electric engines and radios) are the same throughout the range of radio controlled models. Radio controlled cars use 4-channel radio controllers and radio controlled airplanes. 6-mennel radio controllers. Currently BigBoysToys manufactures all components itself. but is considering to outsource the production of the 4-channal radio controllers and to purchase them fmm an external manufacturer. The following information with regards to the production and purchase of these 4-channel radio controllers (manufactured in the 4-ohannel radio controller production department) is available to you: The equipment used to manufacture the 4-channel radio oontrollers' casing (injection moulding equipment] were purchased two years ago at a cost of R900 000. This equipment's current book value is R540 000; while it can be sold for an estimated amount of only R300 000. Depreciation is written off over a period of five years using a straight-line method. with an estimated scrap value of zero. The hand tools used to manufacture the 4~channal radio oontmllers (i.e. screw drivers. soldering irons and pliers) were replaced at a cost of R74 700 one year ago. These tools' current book value is R41 100. Depreciation is written off over a period ot two years using a straight-line method. with an estimated scrap value of R7 500. These tools can either be sold for R50 000 or be stored for one year alterwhich it can be used in the manufacturing process for the assembly of the airplanes' G-channel radio controllers when the hand tools for the latter needs to be replaced. If the existing hand tools (used torthe a-channel radio controllers' REKPi -mu-Cm.'rnr1 as manufacturing) are sold for R50 000. the total cost to replace the B-channel radio controller's hand tools wtll amount to R160 000. If the 4-channal radio controllers' hand tools are not soldV the cost to replace the -channal radio controller's hand tools will total to only R90 000. However: it the 4channel radio controllers' hand tools is kept for one year to be used later, the depreciation to be written off for the year will total to R3? 500. The department has three supervisors - a supervisor overseeing the moulding of the casings; a supervisor overseeing the assemny of the 4-channel radio controllers; and a supervisor testing the 4-channel radio oontmllers. Some of the supervisors will be transfened to another departrnentfs; while others will be retrenched when the department closes. Details on these supervisors is as follow: 0 The casing moulding supervisorwill be retrenched if the depanment is closed since he is (by the end of the month) four months away from retirement anyway. His monthly salary amounts to R25 000. If he is retrenchad. he will receive a retrenchment package of double his remaining four months' salary. If the department is kept open, this supervisor will be replaced with a new supervisor at the same monthly salary as the existing supervisor. o The testing supervisor has given notice at the beginning oi the current month that he will be resigning in three months' time from the date of notice being given. This supervisor will also be retrenched if the depanment is closed. This supervisor's existing salary is R20000 per month. lithe department is closed. this supervisor will receive his normal salary for the remaining notice period. c The assembly supervisor will be transferred to the -channel radio controller production department since expansion in this department requires an additional supervisor. The additional supervisor to be employed will earn a salary of R24 000 per month if a new appointment needs to be m The assembly supenrisor g transterred currently earns a salary of R18 000 per month. If he is transferred to the 6-channel radio controller production depanment instead ofemploying a new supervisor. he will be earning a salary of R20 000 per month. The transfer will be effective trcrn the end of the month. If the department is closed, the section of the factory building being occupied by the department will be cleared and rented out at a monthly rent of R50 000. Some of the electronic components used to manufacture the d-channel radio controllers are kept in stock. The existing stock level has a total value of R250 000: being valued at its cost price. The reason why such a high level of stock is at hand. is due to it being acquired at a special price. Stock to the amount of R10 000 will be used for the current month's production of Adtannel radio controllers. It the depanment is closed. the unused stock can: (i) be sold at its cost price; or (ii) be transferred to the G-channel radio controllers' production depanment. This stock being transferred. will result that R220 000 worth of electronic components (cost price) would not be necessary to be purchased by the G-channal radio controller department. The variable production cost per a-channel radio controller is as follow: Direct material Electronic components R1 000.00 Casing R 100.00 Antenna R 75.00 Shoulder strap R 15.00 Indirect material R 10.00 Direct labour R 312.50 Variable manufacturing overhead R 72.32 TOTAL 31.53500 BEKPGTE rZDQrCIass T932 7/! The fixed production cost per month amounts to R750 000; inclusive of the following: (i) the three supenrisors' salaries (as mentioned above); {iii the depreciation on the injection moulding and hand tools [as mentioned above); (iii) an amount ct R120 000 being an allocation of general sales and administration cost of BigBoysToys: and (iv) an amount of R549 200 lixed manufacturing overhead cost inclined specifically by the d-chanrel radio controller production depanment. An amount of R20 000 of the allocated general sales and administration cost of BigBoysTcys as well as the R549 200 fixed manufacturing cost will be saved it the s-channel radio controller production department is closed. Fixed manufacturing overhead is allocated to the radio controllers on a per unit basis. Average monthly production 01 the 4-channel radio controllers total to 4 000 units per month. The -channel radio controllers are sold for R1 800.00 perunit. RC Components was approached to supply BigBoysToys with 4 000 4channel radio controllers per month at a price of R1 125.00 per unit. A delivery cost of R2 000 per delivery will be due tor delivenng the d-channel radio controllers. Four shipments per month will he made. BigBoysTcys considers to dose the 4-channel radio controller depanment at the end of the month