Delima Berhad has received a special order for 2,000 units of its product at a...
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Accounting
Delima Berhad has received a special order for 2,000 units of its product at a special price of RM75. The product normally sells for RM100 and has the following manufacturing costs:
Per unit
Direct materials
RM30
Direct labour
RM20
Variable manufacturing overhead
RM15
Fixed manufacturing overhead
RM25
Total unit cost
RM90
Assume that Delima Berhad has sufficient capacity to fill the order without harming its normal production and sales.
Required:
i) If Delima Berhad accepts the order, what effect will the order have on the company's short-term profit?
ii)What minimum price should Delima Berhad charge to achieve a RM25,000 incremental profit?
iii) Now assume Delima Berhad is currently operating at full capacity and cannot fill the order without harming its normal production and sales. If Delima Berhad accepts the order, what effect will the order have on the company's short-term profit?
iv) Accountants do not ordinarily record opportunity costs in the formal accounting records. Why?
v) Variable costs are always relevant, and fixed costs are always irrelevant. Do you agree? Why?
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