ASSIGNMENT 2

Please answer all questions and submit hard copy by 12 November 2017. You can submit
by hand during seminar 5 or by post before 12 November 2017.

Beauty House Enterprise manufactures and sells Beauty Drinks which will be distributed to
hypermarket in Johor Bharu area. Normal selling price is RM30 per bottle. The business is
currently operating at 70% of its capacity. The following income statement relates to the current
period:

RM
Sales Revenue 210,000
Less: Cost of goods sold:
Direct materials 21,000
Direct Labour 14,000
Production overhead 28,000 63,000
Gross profit 147,000
Less: Other costs
Administration costs 60,000
Selling and distribution costs 14,000 74,000
Net income 73,000

Notes to the Income Statement:

1. Direct materials, direct labour and selling and distribution costs are all variable in nature.

2. Variable production overhead is RM3 per unit.

3. Administration costs do not change according to activity levels.

For the coming period, a departmental store in Segamat has ordered 5,000 bottles of Beauty
Drinks from Beauty House Enterprise. However they asked for a special price of RM20 per
bottle. An extra fixed costs of RM4,000 will be incurred on this special order. However, Miss
Bella, a sales manager of Beauty House Enterprise decided to reject the order since the selling
price requested is below normal selling price.

Required:

a) Explain briefly the term opportunity costs and sunk cost in decision making.
(5 marks)
b) Comment on the decision made by Miss Bella. (Show all workings)
(12 marks)

c) Proposed a new selling price for special order if Beauty House Enterprise plan to achieve
an annual profit of RM100,000.
(5 marks)
d) Discuss three (3) qualitative factors to be considered in decision making.
(3 marks)
(Total 25 marks)