Relevant Cost - Special Order

RELEVANT COST – SPECIAL ORDER

The Irman Corporation makes small decorative lamps. These lamps have the following cost structure.

Selling price	RM20.00
Variable cost per unit	RM13.00
Fixed cost per unit	RM3.00

The regular production is 20,000 units per month. The maximum number of lamps can be produces in the plant is 32,000 per month.

A foreign company has asked for a special order of 5,000 units at a price of RM15.00 per unit.

Required:

Should Irman Corp accept the special order? How much additional income will be materialized by taking the offer?

RELEVANT COST – SPECIAL ORDER

The Shitah Company makes special paper pants. These pants have the following cost structure.

Selling price	RM7.00
Variable cost per unit	RM3.50
Fixed cost per unit	RM1.75

The regular production is 8,000 units per month. The maximum number of pants can be produces in the plant is 10,000 per month.

A foreign company has asked for a special order of 1,000 units at a price of RM6.00 per unit. An additional shipping cost of RM1.00 per unit will be incurred of the special order is accepted.

Required:

Should Shitah Company accept the special order? How much additional income will be realized by taking the special order?

RELEVANT COST – SPECIAL ORDER

The Nsahsna makes small miniature toys from cloth. These toys have the following cost structure.

Selling price per unit	RM15.00
Direct material per unit	RM4.00
Direct labour per unit	RM1.80
Variable overhead per unit	RM1.20
Fixed overhead per unit	RM1.00
Variable selling expenses per unit	RM1.50

A foreign company has asked for a special order of 500 units at a price of RM10.00 per unit. Nshasna has the excess capacity to complete this special order withour impacting regular production. No selling expenses will be incurred for the special order.

Required:

Should Nsahsna accept the special order? How much additional income will be realized by taking the special order?

RELEVANT COST – SPECIAL ORDER

Kathy Company manufactures and selss a single product called a Yow. Operating at capacity, the company can produce and sell 45,000 Yows per year. Cost associated with this level of production and sales are as follows:

	Per Unit RM	Total RM
Direct materials	22	990,000
Direct labour	12	540,000
Variable manufacturing overhead	4	180,000
Fixed manufacturing overhead	14	630,000
Variable selling overhead	8	360,000
Fixed selling overhead	9	405,000
Total Cost	69	3,105,000

The Yows normally sell for RM75 each. Fixed manufacturing overhead is constant at RM630,000 per year within the range of 35,000-45,000 Yows per year.

Required:

Next year, Kathy Company expect to sell only 40,000 Yows. A large retail chain has offered to purchase 5,000 Yows if Kathy is willing to accept a 20% discounts from the regular price. There would be no sales commission on this order, and thus, variable selling expenses would be slashed by 75%. However, Kathy Company would have to purchase a special machine to engrave the retail chain’s name on the 5,000 units. This machine would cost RM40,000. The company has no assurance that the retail store would purchase additional units at any time in the future. Determine the impact on profits next year if the special order is accepted. (Show your workings)