QUESTION 4 (20 MARKS: 36 MINUTES)

A.Famay Sdn Bhd (FSB) is a manufacturing company that produces high-technology electrical products. One of the items used in the product is component M-2712. Each month, 10 units of M-2712 is required in production. Currently, component M-2712 is produces internally with the following costs incurred:

Direct material

RM500

Direct labor

RM4,000

Manufacturing overhead

150% of direct labor

Material handling

20% from direct material

Additional information related to production of M-2712 are as below:

i.Material handling is a separate charge in addition to manufacturing overhead. It involves the variable cost at Receiving Department that apply to direct material and purchased components on the basis of their cost.

ii.Manufacturing overhead cost consists of variable cost, and fixed cost.

Currently, there are one company approach FSB to supply components M-2712 at a unit price of RM7,500. FSB has three options regarding the empty spaces if they choose to accept the offer from outside supplier:

i.The empty spaces will remain idle.

ii.FSB able to rent out the empty space for RM12,500 per month.

iii.FSB can use the empty space to manufacture new product that would contribute RM26,000 every month.

REQUIRED:

(a)Evaluate each option for FSB regarding the empty spaces. Show all workings.

(8 Marks)

(b)Justify whether the decision to accept the offer from outside supplier on components M-2712 is a correct decision made by FSB.

(2 Marks)

B.MFS Sdn Bhd (MFSSB) manufactures sports attire. The capacity of the production is 5,000 units each month. Currently, the normal production is at 75%. The price for one suit of sport attire is RM175. Below are the costs incurred for the 75% current activity level:

Variable costs:

Amount

Direct material

RM131,250

Direct labor

RM187,500

Marketing

RM93,750

Total variable costs

RM412,500

Fixed costs:

Amount

Manufacturing

RM137,500

Marketing

RM87,500

Total fixed costs

RM225,000

Last week, MFSSB receive an order from a new customer for 1,250 units of sports attire with the price of RM100 per unit. For this order, no variable marketing costs will be incurred.

REQUIRED:

(a)Determine whether MFSSB should accept the special order. Show all workings.

(6 Marks)

(b)Determine whether MFSSB should accept the special order's price of RM100. Show all workings.

(2 Marks)

(c)Discuss TWO (2) qualitative factors that MFSSB should include in the analysis of the special order.

(2 Marks)