QUESTION 3 Part (a)

Dokku Restaurant offers various types of local dish with the special delicacies from Malaysian East Coast. On average, 900 meals were served per day at the restaurant reflecting 75% use of its kitchen capacity. At the current level of activity, the restaurant charges RM15 per meal with the following cost components:

Variable costs per meal: Product Costs (RM)

Chef wages 4.00

Raw food materials 2.50

Other customer related costs 2.00

Fixed costs per meal:

Restaurant overheads RM1.40

Advertising and personnel costs RM 0.60

Dokku has just received a special order for 400 meals per day at RM8 per meal for the coming week. For this particular order, variable customer related costs will not be incurred, but it needs to purchase special packaging materials for a total of RM1,000. You, as the management accountant of Dokku, have been assigned the task of analyzing this order and recommending whether the company should accept or reject it. Fixed costs are paid by end of each month. The restaurant closes every Monday as rest day and remains open on both weekends and public holidays. However, if the order is accepted, the restaurant will be opened for the whole week (7 days), with no impact on the fixed costs. Also, the owner of Dokku made the promise to pay additional fixed amount of RM200 per day as chef wages for working on rest-day.

Required: a. Based on the information above, determine if Dokku should accept the special order. Show all workings and explain your answer.

b. What is the breakeven selling price per meal for the special sales order?

c. Explain three other factors to determine when it is suitable to accept special order.