Question
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
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)
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