Professional Documents
Culture Documents
Direct Materials
Direct labour
Variable overheads
Fixed overheads
The company is considering buying the product 'Kimm' from a vendor Panglima Bhd.
If the company agrees to buy 'Kimm' from the vendor, the following costs will be
incurred:
Cost of buying
Cost of repacking
Transportation costs
Other expenses
RM
3.90 per litre
2.10 per litre
54,000
45,000
If the company buys 'Kimm', fixed overhead costs can be reduced by RM30,000.
Required:
a)
Advise Mahsuri Kimmi Bhd whether the company should buy or make 'Kimm'.
(12 marks)
b)
c)
Page 1 of 7
Total sales
Manufacturing costs:
Fixed
Variable (per unit)
Selling and administrative expenses:
Fixed
Variable (per unit)
RM
180,000
60,000
2.60
30,000
1.00
Variable selling and administrative expenses will not be incurred for any special
order transaction.
Required:
If TeaTime accepts a special order for 5,000 bottles at a selling price of RM4 per
bottle, what would be the effect on the total net income for the year? Show the
changes to the net income.
(12 marks)
Page 2 of 7
Direct materials
Direct labour
Special equipment
Production overhead
Total
You are informed that the production overhead cost is 40% variable and the
remainder is fixed. The direct materials consist of the cost of ceramic material of
RM80,000 and the bought-in components of RM40,000. The company bought these
components from Lekir Berhad at RM4.00 each. In order to reduce cost, the
accountant has suggested that the bought-in components can be manufactured
internally. The production cost per unit of the component is as follows:
Direct material
Direct labour
Production overhead
Total production cost
RM
2.00
1.00
1.50
4.50
The production manager, however, disagrees with this suggestion because the
production cost per unit is higher than the purchase price of the bought-in
component.
Required:
a)
Analyse whether Abdan Prestige should make or buy the components for the
special order.
(3 marks)
Page 3 of 7
b)
Following the decision in (a) above, advise Abdan Prestige whether to accept
or reject the special order from Tuah Berhad.
(12 marks)
c)
Sales
Variable cost:
Contribution Margin
Fixed cost:
Staff salary
General expenses
Miscellaneous
Managers salary
Net profit
Shah
Alam
RM
300,000
130,000
170,000
Setia
Alam
RM
70,000
21,520
48,480
Bukit
Tinggi
RM
151,000
38,211
112,789
RM
521,000
189,731
331,269
32,000
20,342
6,800
14,000
96,858
18,000
4,500
4,600
7,000
14,380
25,800
7,600
4,800
7,000
67,589
75,800
32,442
16,200
28,000
178,827
Total
Additional information:
1.
The sales in Shah Alam and Bukit Tinggi are expected to increase by 30%
and 20% respectively if the branch in Setia Alam is discontinued.
Page 4 of 7
2.
All the three workers in Setia Alam will be laid off but the branch will pay them
three months salary as redundancy payment.
3.
The general expenses are allocated according to sales revenue. If the branch
in Setia Alam is closed down, 30% of the total general expenses could be
avoided.
4.
70% of the Setia Alam branch's miscellaneous expenses are avoidable. The
remaining balance is absorbed by the branches in Shah Alam and Bukit
Tinggi with the apportionment of 60% and 40% respectively.
5.
If the sales in Shah Alam and Bukit Tinggi increase, there is a need to hire a
part time staff. The cost is estimated at 15% of the staff salary cost for the
branches in Shah Alam and Bukit Tinggi.
6.
Required:
a)
Advise Puan Huzaifa whether Setia Alam's branch should be closed down
and concentrates on the branches in Shah Alam and Bukit Tinggi.
(14 marks)
b)
Briefly discuss two (2) factors which you should consider in closing down a
branch.
(4 marks)
(Total: 18 marks)
Page 5 of 7
Sales
Cost of sales
Gross profit
Less: Other expense
Rent
Miscellaneous
Manager salaries
Electricity
General expenses
Staff salaries
Net profit
Arau
RM
145,000
50,000
95,000
Kodiang
RM
90,000
40,000
50,000
Ipoh
RM
25,000
15,000
10,000
8,000
2,000
6,000
5,000
7,808
8,000
58,192
8,000
1,500
6,000
5,000
4,846
5,500
19,154
8,000
4,000
6,000
5,000
1,346
4,500
(18,846)
The Ipoh branch has been showing net losses for the last three years ever since the
opening of Lawa Gift shop, a competitor. The management of Cun Corporation feels
the operation of the branch should be discontinued to increase the company's net
profit.
The following information is available to you:
1.
The sales in Arau branch will increase by 20% when the Ipoh branch is closed
down.
2.
If Ipoh branch is closed down, its electricity and rent costs can be avoided.
3.
The manager of the Ipoh branch can be reassigned to the Arau branch.
4.
Half of the staff salaries for each branch are variable cost. The workers in the
Ipoh branch will be laid off and they will be paid RM5.000 as redundancy
payment in total.
5.
The general expenses are allocated based on sales revenue and they are
fixed in nature. If the Ipoh branch is closed, the total general expenses can be
reduced by 20%. The same basis will be used to allocate the general
expenses to remaining branches.
Page 6 of 7
6.
Miscellaneous expenses for each branch are 40% fixed in nature. If the Ipoh
branch is closed down, 75% of its fixed miscellaneous expenses are
avoidable. The remaining expenses will be absorbed by the Arau branch
(70%) and the Kodiang branch (30%). Meanwhile the variable miscellaneous
expenses of the Arau branch will increase by 10%.
Required:
a)
b)
THE END
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