Question 1

Hakim has decided to open a printing shop. He has secured two contracts. One is a five-year contract to print a comic book. This contract calls for 5,000 copies each month. The second contract is a three-year agreement to print brochures for a Rima University College (RUC). RUC require 10,000 brochures per month.

Hakim has rented a building for RM1,400 per month. His printing equipment was purchased for RM40,000 and has a life expectancy of 20,000 hours with no salvage value. Depreciation is assigned to a period based on the hours of usage. Hakim has scheduled the delivery of the products so that two production runs are needed. In the first run, the equipment is prepared for the book printing. In the second run, the equipment is reconfigured for brochures printing. It takes twice as long to configure the equipment for the book setup as it does for the brochure setup. The total setup costs per month are RM600.

Insurance costs for the building and equipment are RM140 per month. Power to operate the printing equipment is strongly related to machine usage. The printing equipment causes virtually all the power costs. Power costs will run RM350 per month. Printing materials will costs RM0.40 per copy for the book and RM0.08 per copy for the brochure. Hakim will hire workers to run the presses as needed (part time workers are easy to hire). He must pay RM10 per hour. Each worker can produce 20 copies of the book per printing hour or 100 copies of the brochure. Distribution costs are RM500 per month. Hakim will receive a salary of RM1,500 per month. He is responsible for personnel, accounting, sales and production - in effect, he is responsible for administering all aspects of the business.

Required:

a.Calculate prime costs for both book and brochure and total monthly prime cost.

(12 marks)

b.Calculate total cost of goods manufactured.

(7 marks)

c.Hakim receives RM1.80 per copy of the book and RM0.45 per brochure. Prepared an income statement for the first month of operation.

(6 marks)