QUESTION 2

Life Good (LG) Sdn Bhd produces and sells portable steamer which is sold to the retailers at

a price of RM250 per unit. The company is currently operating at 80% of its full capacity.

Below is the information gathered by the management accountant in relation to the

production of the portable steamer:

RM

Revenue 1,250,000

Direct material 200,000

Direct labour 150,000

Manufacturing overhead 250,000

Selling & distribution overhead 50,000

Administrative overhead 200,000

Included in the manufacturing overhead is 60% allocated for variable manufacturing

overhead. While, RM5 for salesman commission is included in the selling & distribution

overhead. Administrative overhead is fixed in nature.

As LG Sdn Bhd has spare capacity, the company decided to evaluate the proposals that the

company received from Matsubisha Electric and Toshibi Sdn Bhd.

Matsubisha Electric

Matsubisha Electric has offered to buy 1,800 units of the portable steamer at 80% of the

normal selling price per unit. LG Sdn Bhd is unable to provide overtime for its worker to

increase the capacity, thus the company needs to cut down on its regular sales. In

addition, LG Sdn Bhd need to incur another RM6,500 for additional administration cost.

Toshibi Sdn Bhd

Toshibi Sdn Bhd offered to buy 1,600 units of portable steamer from LG Sdn Bhd at

RM10 higher than the price offered by Matsubisha Electric. However, Toshibi Sdn Bhd

requested for a slight change in the design thus, LG Sdn Bhd has to incur RM2 per unit

for the modification cost. As LG Sdn Bhd refused to cut down the regular sales to meet

the order, the company will then provide an overtime for the exceeded units.

The overtime premium will be paid based on the incremental rate schedule below:

Scale (unit) RM (per unit)

1 - 50 10

Next 51 - 100 15

Next 101 - 200 20

Next 201 - 300 30

Above 301 40

CONFIDENTIAL 5 AC/MAY 2019/MAF251

Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

Required:

a) Calculate the contribution margin per unit for the portable steamer.

(3 marks)

b) Determine the incremental profit or (loss) for both proposals and advise the

management on which proposal should be accepted by LG Sdn Bhd.

(13 marks)

(Total: 16 marks)