Question
Uptown Sdn Bhd is a company located in Melaka specialises in manufacturing of calculator. The company's famous products are two models of pocket calculator that
Uptown Sdn Bhd is a company located in Melaka specialises in manufacturing of calculator.
The company's famous products are two models of pocket calculator that are Basic model
and Scientist model. The Basic model is sold for RM20 each, has a direct material cost of RM5
and requires 0.25 hours of labour time to produce. The other model, the Scientist, sells for
RM30 each, has a direct material cost of RM6.50 and requires 0.375 hours to produce.
Due to the Covid-19 pandemic crisis, the company is facing a shortage of labour. The labour
of the company is paid at RM24 per hour and is currently very scarce. The existing labour has
been working at full capacity. At the same time, the demand for the company's calculator is
increasing. The company is currently producing 8,000 units of the Basic model and 4,000 units
of the Scientist model per month, while fixed costs are RM96,000 per month.
An overseas customer Texas Corporation has offered the company a contract, worth
RM140,000 to supply to them a new model of pocket calculator similar to what the company
produced but with certain modification and the new model is called Scientific. Due to the
contract from the overseas supplier the company has made a research and discovered the
following cost to be incurred:
The labour time for the contract would be 1,200 hours
The material cost would be RM36,000 plus the cost of a special component XX1.
Special component XX1 is not normally used in the company's models. It could be
purchased from a supplier for RM10,000 or alternatively, it could be made internally
for a material cost of RM4,000 and additional labour time of 150 hours.
Analyse which model of the calculator should be reduced by the company to accommodate the special order from the overseas customer.
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