Question

Q1. Make coffee limited manufactures coffee machines for domestic use. The management of the company is considering next year's production and has asked you to help with certain financial decisions.

THE FOLLOWING INFORMATION IS AVAILABLE:

Selling price (per machine) RM 80

Direct Materials (per machine) RM 25

Direct labour (per machine) RM 30

Fixed production overheads RM 270,000 per year

The company is planning to manufacture 15000 coffee machines next year

- DETERMINE THE FOLLOWING

a) Marginal cost per coffee machine

b) Absorption cost per coffee machine

c) Break-even point in term of Unit

d) Break-even point in term of Unit Sales volume

e) Margin of safety

f) A statement of profit or loss (using marginal costing approach) to show the profit or loss if 15,000 coffee machines are sold

The production manager is proposing the use of new machinery that will reduce the material cost by 8% and the labour cost by 10%. The new machinery will have an additional fixed cost of RM 60,000. The production manager is asking for your advice whether the new machine benefit Coffee works.

-DETERMINE THE FOLLOWING:

a) Marginal cost per coffee machine

b) Break-even point in term of Unit

c) Margin of Safety

d) A statement of profit or loss (using marginal costing approach) to show the profit or loss if 15,000 coffee machines are sold

e) Advise the production Manager on the proposal of new machine.

Answer 1