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Madani Sdn Bhd (Madani) supplies bicycles to retail outlets for the whole of Malaysia throughout the year. However, in anticipation of increased demand from June
Madani Sdn Bhd (Madani) supplies bicycles to retail outlets for the whole of Malaysia throughout the year. However, in anticipation of increased demand from June to September outlets stock up their bicycles from May through August. Outlets are billed when the bicycles are ordered. From past experience, Madani's accountant projects 20% of sales will be collected in the month invoiced, 50% are received in the following month, and 3096 of invoices are received two months after the month of invoice. The average selling price per bicycles is RM450. To meet demand, Madani increases production from April through July, since the bicycles are produced a month prior to the projected sale. Direct materials are purchased in the month of production, and paid for during the following month (terms are payment in full within 30 days of the invoice date). During this period there is no production for inventory, and no materials are purchased for inventory (i.e. the company adopts Just-In-Time (JIT) operation). Direct manufacturing labor and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of RM7 per direct manufacturing labor-hour Variable marketing costs are driven by the number of sales visits. However, there are no sales visits from April to July. Madani Sdn Bhd also incurs fixed manufacturing overhead costs of RM5,500 per month and fixed non-manufacturing overhead costs of RM2,500 per month Projected Sales May June July August September October 80 units 120 units 200 units 100 units 60 units 40 units
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