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Rotanlot Sdn Bhd which operates in Klang Valley produces and sells rattan-based dining set. The company makes an average of RM2,040,000 revenue, and the current
Rotanlot Sdn Bhd which operates in Klang Valley produces and sells rattan-based dining set. The company makes an average of RM2,040,000 revenue, and the current normal production and sales level is 240 units although it has the capacity to produce 300 units per annum without working overtime. The total cost involved in making ONE (1) dining set are as follows: RM Direct Material - rattan (20 metre per unit) 2,000 Direct Material - wood (5 metre per unit) 400 Direct labour - (10 hours per unit) 1,000 Manufacturing overhead (1/4 fixed in nature) 2,600 Selling overhead (salesman commission) 500 The company is keen to utilize the excess production capacity and during the year there are TWO (2) orders received by Rotanlot Sdn Bhd Order 1 An importer from Singapore has offered to buy 80 units of dining set at RM8,000 per unit. Rotanlot Sdn Bhd unable to work overtime to increase its production capacity and must cut down on its regular sales to accept the order. There will be an extra cost of 25% for the fixed manufacturing overhead if the order is accepted. As it involves an export to another country, the seller needs to incur an insurance cost of RM2,500. The importer also has agreed to incur the transportation cost of RM2,500 from the Custom checkpoint in Johor Bahru to its factory in Tampinese, Singapore. However, RM5,000 transportation cost from the Rotanlot's factory in Klang Valley to Johor Bahru will be incurred by the seller. Apart from that, the importer also agreed to pay an extra cost of RM4,500 for the special varnish needed as finishing to complete the order. Order 2 A furniture supplier from Melaka offered to buy 160 units of dining set at RM7,000 per unit. The product for this supplier has different design and Rotanlot Sdn Bhd is expected to add RM70 per metre of rattan used to produce 1 unit of dining set for modification cost. Rotanlot Sdn Bhd does not intend to cut down on its regular sales and instead will work overtime to increase its production capacity. In the case of excess capacity, the overtime premium rate will be charged at 10% for the first 50 units. For the remaining excess of units, the premium paid will be increased by 20% Required: a Calculate the contribution margin loss per unit if the company decided to cut down on its regular sales to accept any special order. (3 marks) b. Advise the management on which order to be accepted if the company can accept only one order. (10 marks)
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