HOLIDAY PACKAGE Question 1 Mach Prompt Bhd. receives a special order to supply 10,000 unit of Beeg Mek at RM3.

60 per unit. Its normal price is RM4.00 per unit. The project manager has accepted the order and sign agreement without discussion with the management accountant. Having to know about the matter, the managing director wants the offer to be reviewed. The following estimates have been established and submitted by the project coordinator. 10,000 units of Beeg Mek RM Materials: Available in stock at original cost 5,000 units of material A 3,000 units of material B Already ordered but not yet paid at original cost (can be cancelled) Material A Material to be purchased at current cost 2,000 units of material C Direct Labour: Unskilled 1,000 hours @ Basic rate RM5 per hour Semiskilled 800 hours@ Basic rate RM7 per hour Skilled 600 hours@ Basic rate RM10 per hour Additional expenses Project Manager Expenses 5,000 5,600 7,000 1,800 1,200 6,000 5,000 10,000 3,000

Additional information: 1. The production manager does not foresee any other use of both Material A and B in stock. However, material A can be sold as scrap at RM0.20 per unit and material Bs net realizable value if re-sold would be its current price less RM1,000 disposal costs. 2. Material C can be substituted with Material D. At present, supplies of Material D are not available in the market. Company can only get material D from another project M16 which currently gives RM10 contribution for every unit of M16. One unit of M16 will require 4 units of Material C. 3. Unskilled labour is fully occupied. However, they are willing to work overtime at 60% overtime premium based on the basic rate. 4. Semiskilled labour is part of the permanent workforce and company has temporary excess supply of this labour at this time. 5. Skilled labour is in short supply. Presently, it is used to manufacture product Cheek Bom, which requires three skilled labours to produce one unit of Cheek Bom. The contribution of one unit of Cheek Bom is RM40 (excluding labour cost) 6. The additional expenses are including machine process cost of RM1,100. 7. 50% of Project manager expenses are actually appropriations from the head office cost. The balance is extra expenses that need to be paid to the manager if the company wants to undertake the project. 8. If company would like to withdraw from the contract agreement, an agreed penalty of RM5,000 will have to be paid.

Required:

Advise the manager on the best possible action. Detail out the reasoning for any inclusion or omission costs from your statement. ***7marks for the reasons!!! (20 marks)

Question 2 Ked Skateboards Sdn Bhd manufactures skateboards. Several weeks ago, the firm received a special-order inquiry from Element Skateboards Sdn Bhd. Element desires to market a skateboard similar to one of Keds model and has offered to purchase 11,000 units of skateboards from Ked Skateboards if the order can be completed in one month. The cost data for one unit of Keds skateboard model are as follows: RM 15.20 10.00 12.00 37.20

Direct materials Direct labour (0.5 hour @ RM 20 per hour) Total manufacturing overhead (0.5 hour @ RM 24 per hour) TOTAL COST Additional data:

The normal selling price of Keds skateboard is RM 54. However, Element has requested Ked to cut down the price by 15% because of the large quantity it is willing to purchase. Element requires a modification of the design that will allow a RM 3.20 reduction in direct materials cost. Keds production supervisor notes that the company will incur RM 8,500 in additional setup costs and will have to purchase a RM 7,400 special device to manufacture these units. The device will be discarded once the special order is completed. Total manufacturing overhead costs are applied to production at the rate of RM 24 per machine hour. This figure is based, in part, on budgeted yearly fixed overhead of RM 750,000 and planned production activity of 60,000 machine hours annually (5,000 machine hours per month). Ked will allocate RM1,800 of existing fixed administrative costs to the order as part of the cost of doing business. Currently, Keds production capacity consumes 60% of planned machine-hour activity.

Required: Advise Ked Skateboards Sdn Bhd on whether or not the special order should be accepted and support your suggestion with appropriate figures for presentation to the management. (15 marks)