MANAGEMENT ACCOUNTING 2 : ACCEPT OR REJECT

QUESTION 2 Razfaly Bhd is producing Product X. The current capacity of production is 2,000 units of Product X. The cost estimate per unit based on current capacity of 80% is as follows: Direct material Direct labour Variable production overhead Fixed production overhead RM 2.00 5.00 3.00 4.00 Total selling expenses are RM15,000 where only 40% is variable. The company sells Product X to its regular customer at RM18 per unit. non-regular customer, Zuechi Bhd has approached the company to purchase 800 units of custom-made Product X at RM20 each. However, Razfaly Bhd needs to incur transportation cost of RM800 if the order is fulfilled. Variable selling will also be incurred for any special order units. Required: a. Decide whether Razfaly Bhd should accept the special order from Zuechi Bhd. (All workings must be showed clearly) (24 marks) One of the foreign companies, Achoo Bhd has approached Razfaly Bhd for the same unit of Product X as per Zuechi Bhd but offer a higher price of RM25 per unit. In addition to that, this order will incur an extra cost, hire of special machine of RM8 per unit. Achoo Bhd will bear all transportation costs. Decide whether Razfaly Bhd should accept this offer from Achoo Bhd or just remain a special order from Zuechi Bhd. (8 marks)