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M 19 View Help Search (Alt+C Acrobat Table Design Layout --- Nomal No Spacing Heading 1 Heading 2 Title ===--- 12 Paragrah Styles MANM297/5/SEMR2/21/22 (0 hand-out) Question 2: Hulk Limited produces and sells wheelie rubbish bins to local authorities and recycling companies. The company has the capacity to produce 50,000 units but annual production and demand are currently limited by the market to 30,000 wheelie rubbish bins per annum. The total costs of producing 30,000 wheelie rubbish bins are as follows: Direct materials 420,000 Direct labour 99,000 Variable overhead 81,000 Fixed overhead 300,000 Total cost of 30,000 wheelie rubbish bins 900,000 The selling price of each wheelie rubbish bin is 40. Required a) Calculate the break-even point and the current margin of safety. [5 marks] b) An order is received from Stark Waste Disposal for 2,000 wheelie rubbish bins at a price of 28 each. Explain whether Hulk Limited should accept this order or not and what possible adverse consequences there would be in accepting this new order. [10 marks] (c) Hammer Industries has approached the company with a view to buying the entire annual production of 50,000 wheelie rubbish bins that the company can produce as part ESDAY 5 Pred- Replace Select- Editing Variable overhead 81,000 Fixed overhead 300,000 Total cost of 30,000 wheelie rubbish bins 900,000 The selling price of each wheelie rubbish bin is 40. Required a) Calculate the break-even point and the current margin of safety. [5 marks] b) An order is received from Stark Waste Disposal for 2,000 wheelie rubbish bins at a price of 28 each. Explain whether Hulk Limited should accept this order or not and what possible adverse consequences there would be in accepting this new order. [10 marks] c) Hammer Industries has approached the company with a view to buying the entire annual production of 50,000 wheelie rubbish bins that the company can produce as part of a long term supply contract which will run for several years. However, if this order is accepted the selling price will fall to 34 per wheelie rubbish bin. The directors are keen to accept this order but are wondering if there are any potential disadvantages they should consider. Using any calculations required, advise the directors on whether this order should be accepted. [5 marks] d) Outline the assumptions upon which the marginal costing approach to decision making is based. [5 marks] [Total: 25 marks] 16 17 FY F10 2 4+ F12 PRISC INSERT