QUESTION 4 BeatSolo Bhd specializes in producing audio products such as headphone, earphone and microphone for local market. Due to stiff competition, the management decides to discontinue the production of earphone. Eliminating the earphone will result in the sales and production of headphone to increase by 30% from the current level. For the year ended December 2020, the Statement of Profit or Loss Account of BeatSolo Bhd is as follows: Units Headphone 3,000 RM 50 150,000 Earphone Microphone 2,500 3,500 RM RM 20 35 50,000 122.500 Selling price Sales revenue Variable costs: Direct material Direct labour Miscellaneous supplies Total variable costs 9,000 6,000 6,000 21,000 5,000 3,200 3,400 11,600 6,000 4,500 4,800 15,300 Fixed costs: Staff salary 25,000 23,000 24,000 Depreciation 6,800 6,800 6,800 General factory overhead 12,000 10,000 14,000 Administration overhead 16,200 13,000 12,600 Total fixed costs 60,000 52,800 57,400 Net Profit 69,000 (14,400) 49,800 The following will take place if the company discontinue the production of earphone: 1. Two managers from the earphone with total annual salaries of RM18,000 will have to be retrenched and a total compensation of RM40,000 will have to be paid by the company. The remaining manager will be reassigned to the headphone product. 2. Depreciation cost for earphone is unavoidable and it will be borne equally by headphone and microphone. 3. The total general factory overhead cost for the company can be reduced by 25% if the product earphone discontinued. The total general factory overhead cost for the company will be reallocated to the remaining products based on sales revenue. The administration overhead cost for earphone can be avoided except for the RM3,000 rent expenses which will be absorbed by headphone product. 5. Due to the increase in the production of headphone, additional occupancy cost amounted to RM15,000 will be incurred by the company. Required: a) Calculate the total avoidable fixed cost if BeatSolo Bhd discontinue the production of earphone (3 marks) b) Assess the revised net profit of the company by preparing the Statement of Profit or Loss using marginal costing approach if the earphone is discontinued. (Round up the figure to the nearest Ringgit Malaysia). (10 marks) Recommend to the management of BeatSolo Bhd whether the earphone should be discontinued or not. (2 marks) List any FOUR (4) basis in allocating common sharing fixed costs to the specific branch, department or products. (4 marks) (Total: 19 marks) d)
