Lee Seng Parts & Services Sdn Bhd manufactures 30,000 units of P-7, a part used in the engine of trucks and cars. At this level of production, the cost per unit of P-7 is as follows: RM Direct materials 3.60 Direct labor 10.00 Variable manufacturing overhead 2.40 Fixed manufacturing overhead 9.00 Total cost per unit 25.00 A supplier from China has offered to sell 30,000 units of part P-7 each year to Lee Seng Parts & Service Sdn Bhd for RM 21.00 per part. If Lee Seng Parts & Service Sdn Bhd accepts this offer, the facilities now being used to manufacture part P-7 could be rented out to another company at an annual rental of RM 80,000. However, Lee Seng Parts & Services Sdn Bhd has determined that two-thirds of the fixed manufacturing overhead being applied to part P-7 would continue even if P-7 were purchased from the supplier from China. Required Prepare computations showing how much profits will increase or decrease if the supplier from China’s offer is accepted. Should Lee Seng accept the offer?
Lee Seng Parts & Services Sdn Bhd manufactures 30,000 units of P-7, a part used in the engine of trucks and cars. At this level of production, the cost per unit of P-7 is as follows: RM Direct materials 3.60 Direct labor 10.00 Variable manufacturing overhead 2.40 Fixed manufacturing overhead 9.00 Total cost per unit 25.00 A supplier from China has offered to sell 30,000 units of part P-7 each year to Lee Seng Parts & Service Sdn Bhd for RM 21.00 per part. If Lee Seng Parts & Service Sdn Bhd accepts this offer, the facilities now being used to manufacture part P-7 could be rented out to another company at an annual rental of RM 80,000. However, Lee Seng Parts & Services Sdn Bhd has determined that two-thirds of the fixed manufacturing overhead being applied to part P-7 would continue even if P-7 were purchased from the supplier from China. Required Prepare computations showing how much profits will increase or decrease if the supplier from China’s offer is accepted. Should Lee Seng accept the offer?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
- Lee Seng Parts & Services Sdn Bhd manufactures 30,000 units of P-7, a part used in the engine of trucks and cars. At this level of production, the cost per unit of P-7 is as follows:
|
|
RM |
|
Direct materials |
3.60 |
|
Direct labor |
10.00 |
|
Variable manufacturing overhead |
2.40 |
|
Fixed manufacturing overhead |
9.00 |
|
Total cost per unit |
25.00 |
A supplier from China has offered to sell 30,000 units of part P-7 each year to Lee Seng Parts & Service Sdn Bhd for RM 21.00 per part. If Lee Seng Parts & Service Sdn Bhd accepts this offer, the facilities now being used to manufacture part P-7 could be rented out to another company at an annual rental of RM 80,000. However, Lee Seng Parts & Services Sdn Bhd has determined that two-thirds of the fixed manufacturing overhead being applied to part P-7 would continue even if P-7 were purchased from the supplier from China.
Required
- Prepare computations showing how much profits will increase or decrease if the supplier from China’s offer is accepted. Should Lee Seng accept the offer?
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