Question

QUESTION 214 (25 MARKS) Zumba Bhd produces a single product The f ucing and selling a sing product at the company's normal activity level of 120.000 units per month are ducing and selling a single unit of this 0,000 units per month are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative Fixed selling and administrative RM 68.00 8.00 4.00 42.60 5.40 -0.6 14.00 The normal selling price of the product is RM159.60 per unit. An order has been received from an overseas customer for 4.000 units to be delivered this month at a special discounted price. This one would have no effect on the companys norinal sales and would not change the total amount of company's fixed costs. The variable selling and administrative expense would be less hy RM0.60 per unit on this order than on normal sales. Direct labor is a variable cost in this company. Required: a) Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is RM143.20 per unit. Compute how much would the special order increase/(decrease) the company's net operating income for the month. (7 marks) b) Suppose the company is already operating at capacity when the special order is received from the overseas customer. Compute the opportunity cost of each unit delivered to the overseas customer. (7 marks) el Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1.400 units for regular customers. Compute the minimum price per unit for the special order. (8 marks) Explain in what situation the opportunity cost should be taken into consideration in decision making. (3 marks)

Answer 1

oun all score for wo the comse will be the minimum examination. Hince her utility 32 Now suppose - X= fast enamination's score - y = Second enarinations score 4 Now, Hure ovn all score for t of her score on the two examination. He fruction will be? U= min (X,Y) forfasteran - Now, to increase her score by one point, she should study for 10 minutes. Huice for to get score et equal to y She should study for lox minutes. Now for the second enam, to increase hen score by one point, she should study bor 20 minutes. Hence to get score equal to y, she should study for 20y minuty. . And the total allowable time she has is 1, 200 minutes. Hace, her budget line will be 1200 = 10 x + 20y Now it to the horizontal entncept of the budget line will be found by substituting y zo in the budget line. Hace 1200 = 10x to =) X= 120 and untical intocept of the budget line will be found by substituting X=0 in the budget line. Hice, 1200 = (10*0) +20y 2) Y- 60 - Now by Joining horizontal and unistical in Incept, we can get her budget line AB . CS Scanned with CamScanner