Viva Valves manufactures a variety of industrial valves and pipe fittings sold primarily to customers in Malaysia. Currently, the company is operating at 70 percent of capacity and is earning a satisfactory return on investment.

Perindu Bhd. has approached Vivas management with an offer to buy 120,000 pressure valves. Perindu manufactures an almost identical pressure valve, but a fire in Perindus valve plant has closed its manufacturing operations. Perindu needs the 120,000 valves over the next four months to meet commitments to its regular customers; the company is prepared to pay RM190 each for the valves.

Viva Valves product cost for the pressure valve based on current attainable standards is:

	RM
Direct material	50
Direct labour	60
Manufacturing overhead	90
Total cost	200

Manufacturing overhead is applied to production at the rate of RM180 per standard direct labour hour. This overhead rate is made up of the following components:

	RM
Variable factory overhead	60
Fixed factory overhead - direct	80
Fixed factory overhead - allocated	40
Applied manufacturing overhead rate	180

Additional costs incurred in connection with sales of the pressure valve include 5 percent sales commissions and RM10 freight expense per unit. However, the company does not pay sales commissions on special orders that come directly to management.

In determining selling prices, Viva adds a 40 percent markup to product cost, which provides a RM280 suggested selling price for the pressure valve. The marketing department, however, has set the current selling price at RM270 to maintain market share.

Production management believes that it can handle Perindu Bhds order without disrupting its scheduled production. The order would, however, require additional fixed factory overhead of RM120,000 per month in the form of supervision and clerical costs.

If management accepts the order, Viva will manufacture 30,000 pressure valves and ship them to Perindu Bhd. each month for the next four months.

Required:

1. Determine how many additional direct labour hours would be required each month to fill the Perindu Bhd. order. (3 marks)

(b) Prepare an incremental analysis or differential analysis showing the impact of accepting the Perindu Bhd. order. (6 marks)

3. Calculate the minimum unit price that Viva Valves management could accept for the Perindu Bhd. order without reducing net income. (3 marks)

4. Identify the factors, other than price, that Viva Valves should consider before accepting the Perindu Bhd. order. (8 marks)