Question
QUESTION 2 (20 MARKS) Kasio Time recently began production of a new product, a smart watch, which required the investment of RM1,600,000 in assets. The
QUESTION 2 (20 MARKS) Kasio Time recently began production of a new product, a smart watch, which required the investment of RM1,600,000 in assets. The cost of producing and selling 80,000 units of the smart watch are estimated as follows: RM Variable cost per unit: Direct materials 10 Direct labour 6 Factory overhead 4 Selling & Administrative expenses 5 Total variable cost 25 Fixed Cost: Factory overhead 800,000 Selling & Administrative expenses 400,000 Kasio Time is currently considering establishing a selling price for the smart watch. The CEO of Kasio Time has decided to use the cost plus approach to product pricing and has indicated that the smart watch must earn profit a 10% return on invested capital. Instructions a) Determine the amount of desired profit from production and sale of the smart watch. b) Assuming that the traditional product cost method is used, determine i) the cost amount per unit; ii) the mark up percentage*; and iii) selling price of the smart watch. c) Please discuss under what conditions should Kasio Time consider using activity based costing rather than single factory overhead allocation rate in allocating factory overhead to the smart watch. d) Assume that the market price for similar smart watch sold by other sellers was estimated at RM38. Kasio Time does not want to be defeated by the competitor price. Compute the reduction in manufacturing cost per unit needed to maintain the desired profit per unit and existing selling and administrative expenses if the company want to sell at similar price. Prepare the table to compare between profit per unit for the current and desired situation. e) Assume for the current year, the selling price of the smart watch was $42 per unit. To date, 60,000 units have been produced and sold and analysis of domestic market indicates that 15,000 additional units are expected to be sold during the remainder of the year. Given the expected units of production, the company will operate almost with full capacity. On August 7, Kasio Time received special offer from Seng Inc. for 4,000 units of the smart watch at RM30 each. There are additional promotional and administration expenses associated with the sale in Taiwan will be incurred by Kasio Time amounting RM20,000. The special offer will make the company to forego 3,000 units of sale from domestic market. Prepare differential analysis dated August 7 to determine whether to reject to accept the special order. Please also consider nonfinancial factor that might change your decision making
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