Question 2 Part A WC Sdn. Bhd. (WC) produces skateboards that are sold to customers in Malaysia. Currently, the company is operating at about 65% capacity and is earing a satisfactory return in investment Several weeks ago, WC received an offer from Get Fit Ltd. (GF) of Singapore to purchase 11,000 skateboards if the order can be completed in 3 months. The cost data for WC's Winner model skateboard are: RM per unit Direct material 16.40 Direct labour (0.125 hours @ RM36/hour) 4.50 Total production overhead (37.5% is variable) 20.00 Total production cost 40.90 Additional costs incurred in connection with sales of skateboard are sales commission of 5% and freight expense of RMI per unit. However, WC does not pay sales commission on special orders that come directly to management. The following additional information is available: 1) In determining selling prices, WC adds 30% markup to product cost. This provides a RM53.17 selling price for the skateboard. The marketing department, however, has set the current selling price at RM53 to maintain market share. 2) GF has offered to buy at RM40.00 per unit because of the large quantity it is willing to buy. 3) GF requires a modification of the design that will allow a RM4.20 reduction in direct material costs. 4) WC production department believes that it can handle GF order without disrupting its scheduled production. The order, would, however, require additional fixed factory overhead of RM2,500 per month in the form of supervision costs and RM3,500 for the purchase of special device to produce these units. The device will be discarded once the special order is completed. 5) If accepted, shipment will be made in three months' time, FOB shipping point, i.e. freight expense will be paid by GF. 6) WC will allocate RM3,600 of existing fixed administrative costs to the order as part of the cost of doing business'. All computations are to be rounded to two decimal points. Required: a) Determine how many direct labour hours will be required to fill the GF order. (1 mark) b) Prepare an analysis showing the impact on operating profits of accepting the special order from GF. (6 marks) c) Calculate the minimum unit price that WC could accept for GF order without reducing operating income. (1 marks) d) Suppose now that if GF order were accepted, existing sales of 1,000 skateboards to regular customers will be lost (at regular selling price of RM53 per unit). All other facts are as given in the question. What is the revised minimum price per unit for GF special order? (8 marks) e) Identify FIVE strategic (qualitative) factors that WC should consider before accepting the GF order
