BigBoys RC Toys; trading as BigBoysToys, manufactures 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-channel radio controllers. Currently BigBoysToys manufactures all components itself, but is considering to outsource the production of the 4-channel radio controllers and to purchase them from an external manufacturer. The following information with regards to the production and purchase of these 4-channel radio controllers (manufactured in the 4-channel radio controller production department) is available to you: The equipment used to manufacture the 4-channel radio controllers casing (injection moulding equipment) were purchased two years ago at a cost of R900 000. This equipments 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-channel radio controllers (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 of 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 after which it can be used in the manufacturing process for the assembly of the airplanes 6-channel radio controllers when the hand tools for the latter needs to be replaced. If the existing hand tools (used for the 4-channel radio controller manufacturing) are sold for R50 000, the total cost to replace the 6-channel radio controllers hand tools will amount to R160 000. If the 4-channel radio controllers hand tools are not sold, the cost to replace the 6-channel radio controllers hand tools will total to only R90 000. However; if the 4-channel 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 R37 500. The department has three supervisors a supervisor overseeing the moulding of the casings; a supervisor overseeing the assembly of the 4-channel radio controllers; and a supervisor testing the 4-channel radio controllers. Some of the supervisors will be transferred to another department/s; while others will be retrenched when the department closes. Details on these supervisors is as follow: o The casing moulding supervisor will be retrenched if the department 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 retrenched, 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 of 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 department is closed. This supervisors existing salary is R20 000 per month. If the department is closed, this supervisor will receive his normal salary for the remaining notice period. o The assembly supervisor will be transferred to the 6-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 made. The assembly supervisor being transferred currently earns a salary of R18 000 per month. If he is transferred to the 6-channel radio controller production department instead of employing a new supervisor, he will be earning a salary of R20 000 per month. The transfer will be effective from 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 4-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 R70 000 will be used for the current months production of 4-channel radio controllers. If the department is closed, the unused stock can:

(i) be sold at its cost price; or

(ii) be transferred to the 6-channel radio controllers production department. This stock being transferred, will result that R220 000 worth of electronic components (cost price) would not be necessary to be purchased by the 6-channel radio controller department

The variable production cost per 4-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 72.50 TOTAL R1 585.00

The fixed production cost per month amounts to R750 000; inclusive of the following: (i) the three supervisors salaries (as mentioned above);

(ii) the depreciation on the injection moulding and hand tools (as mentioned above);

(iii) an amount of R120 000 being an allocation of general sales and administration cost of BigBoysToys; and

(iv) an amount of R549 200 fixed manufacturing overhead cost incurred specifically by the 4-channel radio controller production department. An amount of R20 000 of the allocated general sales and administration cost of BigBoysToys as well as the R549 200 fixed manufacturing cost will be saved if the 4-channel radio controller production department is closed. Fixed manufacturing overhead is allocated to the radio controllers on a per unit basis. Average monthly production of the 4-channel radio controllers total to 4 000 units per month. The 4-channel radio controllers are sold for R1 800.00 per unit. RC Components was approached to supply BigBoysToys with 4 000 4-channel radio controllers per month at a price of R1 725.00 per unit. A delivery cost of R2 000 per delivery will be due for delivering the 4-channel radio controllers. Four shipments per month will be made. BigBoysToys considers to close the 4-channel radio controller department at the end of the month.

Required: a) Using relevant costing principle, advise BigBoys toys whether the channel radio controller department should be closed at the end of the month. Show all your calculations clearly and provide a reason for not including a cost/ income item in your analysis.

b) The analysis you have prepared and the recommendation you have made in (a) above, does that represent the true monthly scenario in the future, explain with reference to relevant figures.

a) Using relevant costing Principles advise Bigboys Toys whether the 4channel radio controller department should be closed at the ene of the month. Show all your calculations clearly and provide a reason for not including cost/ income item in your analysis .

REQUIRED: Sub 6.1 Using relevant costing principles, advise BigBoysToys whether the 4-channel radio controller department should be closed at the end of the month. Show all your calculations clearly and provide a reason for not including a cost/income item in your analysis. 6.2 The analysis you have prepared and the recommendation you have made in (6.1) above, does that represents the true monthly scenario in the future? Explain with reference to relevant figures. TOTAL MARKS TOTAL for the A 1 REQUIRED: Mar Subtotal 6.1 Using relevant costing principles, advise BigBoysToys whether the 4-channel radio controller department should be closed at the end of the month. Show all your calculations clearly and provide a reason for not including a cost/income item in your analysis. 6.2 The analysis you have prepared and the recommendation you have made in (6.1) above, does that represents the true monthly scenario in the future? Explain with reference to relevant figures. TOTAL MARKS TOTAL for the PAPE REQUIRED: Sub 6.1 Using relevant costing principles, advise BigBoysToys whether the 4-channel radio controller department should be closed at the end of the month. Show all your calculations clearly and provide a reason for not including a cost/income item in your analysis. 6.2 The analysis you have prepared and the recommendation you have made in (6.1) above, does that represents the true monthly scenario in the future? Explain with reference to relevant figures. TOTAL MARKS TOTAL for the A 1 REQUIRED: Mar Subtotal 6.1 Using relevant costing principles, advise BigBoysToys whether the 4-channel radio controller department should be closed at the end of the month. Show all your calculations clearly and provide a reason for not including a cost/income item in your analysis. 6.2 The analysis you have prepared and the recommendation you have made in (6.1) above, does that represents the true monthly scenario in the future? Explain with reference to relevant figures. TOTAL MARKS TOTAL for the PAPE