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Ahmed owns Ahmed Manufacturing LLC based in Muscat. In deciding on several important business-related decisions, he has to deal with the following independent scenarios/statements: (0) All future costs are relevant in decision making (1) A sunk cost is a cost that is yet to be incurred but that can be avoided at least in part depending on the action a manager takes. (i) A cost that will be incurred regardless of Ahmed's action is relevant to his decision. (iv) In a decision to drop a segment, the opportunity cost of the space occupied by the segment would be zero. () Common fixed overhead that will continue if the special offer is not accepted is relevant to Ahmed's decision. For each of the scenario/statement () to () above, STATE your agreement OR disagreement and (10 Marks) provide appropriate EXPLANATION(S) / JUSTIFICATION(S) 4.280 (a) Ahmed Manufacturing LLC is considering using stocks of an old raw material in a special project. The special project would require al 210 kilograms of the raw material that are in stock and that originally cost the company OMR1,804 in total. If the company were to buy new supplies of this raw material on the open market, it would cost OMR8.55 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of OMR7.75 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of OMR79.00 for all 210 kilograms. Calculate the relevant costs of the 210 kilograms of the raw material when deciding whether (6 marks) to proceed with the special project; and Explain why you consider such costs as relevant to the decision. (b) Ahmed Manufacturing LLC is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 1,600 units of component Y. Each unit of Y requires 8 units of material X and 1 unit of material Z. Data concerning these two materials are given below Material Units in Stock Original Cost/Unit Current market Price/unit Disposal Value/unit OMR420 OMR3.85 OMR3.65 Z 1,500 OMR9.30 OMR9.30 OMR7.96 Material X is in use in many of the company's products and is routinely re-stock. Material is no longer used by the company in any of its normal products and existing stocks would not be re-stock once they are used up. Calculate the minimum acceptable price for the order for component Y (7 marks) (c) The management of Ahmed Manufacturing LLC is considering dropping product RC. Data from the company's accounting system appear below: Sales OMR130,000 Variable Costs OMR65.000 Fived manufacturing Costs OMR49.000 Foced Selling and Administrative Costs OMR35.000 In the company's accounting system, all fixed expenses are fully allocated to products. Further investigation has revealed that 30% of the fixed manufacturing expenses and 20% of the fixed selling and administrative expenses are avoidable if product RC is discontinued. What would be the effect on the company's overall net operating income if product RC were 7 Marks) dropped? 3 Page Copy Select All Look Up Share... ACCT 312 Test 1 Fal 2020 Question 3 (35 Marks) Ahmed Manufacturing LLC manufactures Product Q. In the previous month of September 2020, the company budgeted to manufacture and sell 3,300 Product Q at a variable cost of OMR74 per unit and total fixed costs of OMR45,000. The budgeted selling price per unit was OMR110. Actual results in that month were 2.600 units manufactured and sold at a selling price per unit of OMR112. The actual total variable costs were OMR229,600 and the actual total fixed costs incurred were OMR50,000. (a) Prepare a budgeted income statement based on the above information by clearly showing (for (10 Marks) each item in the income statement) the: 0 Actual Results; () Static Budget amount; (IM) Flexible Budget amount; (iv) Static Budget variance; (1) Flexible Budget variance; (vi) Sales Volume variance; Ahmed Manufacturing LLC manufactures Product Q. The following data are available. DM [Standard/unit: 10 lb. at OMR4.50/1b.] OMR45 DL [Standard unit: 0.5 hour at OMR30/hour] OMR15 Budgeted finished units 10.000 Budgeted units actually produced 9,580 Actual DM used 98,055 lb. Actual DL hours used 4,950 Machine Hours (MHs) (Actual) 9,000 Machine Hours (Budgeted) 9,800 Variable Overhead per MH (Actual) 5.50 Variable Overhead per MH (Budgeted) 5.25 Total Actual DL costs OMR154,350 Cost of DM purchased (Qty: 100,000 lb.) 456,000 Note: DM: Direct Materials and DL: Direct Labor (b) (0) Compute the price and efficiency variances for both items of DM and DL. (15 Marks) (1) Compute the Variable Overhead Spending and Efficiency Variance Unrelated to the question above, compute the Fixed Overhead Spending and Production Volume Variance assuming that the yearly data for the total actual fixed overhead cost is OMR20,000 higher than the budgeted amount of OMR700,000 and budgeted production is 24,000 units lower than the actual production of 504,000 (c) (1) Discuss the possible reasons for an unfavorable direct manufacturing labor efficiency (3 Marks) variance. (m) Explain how Variance analysis could form the basis of continuous operational improvement in (3 Marks) Ahmed Manufacturing LLC Are the Variable Cost Efficiency Variance and Variable Overhead Efficiency Variance (4 Marks) the same or different? Explain

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