Question

Question 5 (9 marks) Asterix Co. produces mats for use in fitness centers. Production capacity is 20,000 mats per year. Asterix Co. has currently a spare capacity of 2,000 mats. Obelix Co has contacted Asterix Co to place a one-off order for 2,000 mats. Budgeted cost for 20,000 units Variable Manufacturing costs Fixed Manufacturing costs $900,000 $800,000 Asterix Co normally sell mats for $100/mat, and Obelix Co has offered to pay $90 per mat. (i) What would be the incremental profit/loss if Asterix chooses to accept the special order for 2,000 mats? (3 marks) (ii) If Obelix Co wants to place a one-off order for 3,000 mats, and Asterix Co. choose to accept the special order, what would be the incremental profit/loss? (3 marks)

Answer 1

*If Answer (1) Special order of 2000 mats is accepted Variable Cost Per a Budgeted Variable cost Budgeted units unit 9,00,000 20,000 incremental Quantity = 2000 Sales (2000x90) 1,80,000 In Variable cost (2000X45) 90,000 greemental Profit * Answers (2) fpxed cost per unit = Budgeted fixed cost Budgeted units - 800.000 Lopoo 840 Incremental Quantity a 3000 Sales (3000 x 909 = 270,000 -) Variable Cost = 1,31,000 (3000X45) Contribution 1,35,000 - Additional fixed cost (1000X40) 40,000 Sheremental profit 95,000

2 Answer (3) Inexmental suntity 3000 Sales Booo X90) 2,70,000 (-) Variable cost (3000X 45) 1,357000 Contribution 1,357000 - Additional fixed cost (1000 x 40) 95,000 (-) Additional cost of New Mach 30,000 Incremental Profit 65,000 40,000 Answer (4) Special order should be accepted since the Profit increase e factors to be considered - lobour facility is availchic for working on new hochine. facility is available for incvering Plant Capacity