Sazali is a newly appointed cost trainee for a rattan furniture maker, Zen-Rotan, which manufactures various designs and sizes of furniture in sets and individual items. All these years, the company has always adopted a simple approach of pricing and gives discounts when customers negotiate the price. Sazali feels that a high turnover is important for improved profitability of the business. There are three types of furniture which Zen-Rotan produces, Type A, Type B and Type C. The following is June 2017's monthly information for each unit of different type of furniture. Materials consumption in kg Direct labour in hours Manufacturing overheads Other overheads Demand for the month (sets) Type A 50 24 RM45 RM35 200 Type 70 30 RM50 RM25 400 Type C 90 40 RM65 RM45 120 Materials are charged at RM20 per kg and the direct labour at RM25 per hour; a high rate considering skilled labour is employed. It is that time of the year where the festive season is just round the corner, so orders are on the rise. Sazali is confident that the production capacity is capable of meeting the demand. Required: a. Advise Sazali as to which pricing method is appropriate for the three types of furniture. b. Having made the choice of pricing method in (a), calculate the selling price and show the statement of profit and loss for one month. c. Discuss briefly other factors that might influence the pricing of Sazali's furniture.
Sazali is a newly appointed cost trainee for a rattan furniture maker, Zen-Rotan, which manufactures various designs and sizes of furniture in sets and individual items. All these years, the company has always adopted a simple approach of pricing and gives discounts when customers negotiate the price. Sazali feels that a high turnover is important for improved profitability of the business. There are three types of furniture which Zen-Rotan produces, Type A, Type B and Type C. The following is June 2017's monthly information for each unit of different type of furniture. Materials consumption in kg Direct labour in hours Manufacturing overheads Other overheads Demand for the month (sets) Type A 50 24 RM45 RM35 200 Type 70 30 RM50 RM25 400 Type C 90 40 RM65 RM45 120 Materials are charged at RM20 per kg and the direct labour at RM25 per hour; a high rate considering skilled labour is employed. It is that time of the year where the festive season is just round the corner, so orders are on the rise. Sazali is confident that the production capacity is capable of meeting the demand. Required: a. Advise Sazali as to which pricing method is appropriate for the three types of furniture. b. Having made the choice of pricing method in (a), calculate the selling price and show the statement of profit and loss for one month. c. Discuss briefly other factors that might influence the pricing of Sazali's furniture.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:4 Sazali is a newly appointed cost trainee for a rattan furniture maker, Zen-Rotan, which
manufactures various designs and sizes of furniture in sets and individual items. All these years,
the company has always adopted a simple approach of pricing and gives discounts when
customers negotiate the price. Sazali feels that a high turnover is important for improved
profitability of the business. There are three types of furniture which Zen-Rotan produces,
Type A, Type B and Type C. The following is June 2017's monthly information for each unit of
different type of furniture.
Турe A
Туpе B
Туре C
Materials consumption in kg
50
70
90
Direct labour in hours
24
30
40
Manufacturing overheads
RM45
RM50
RM65
Other overheads
RM35
RM25
RM45
Demand for the month (sets)
200
400
120
Materials are charged at RM20 per kg and the direct labour at RM25 per hour; a high rate
considering skilled labour is employed. It is that time of the year where the festive season is
just round the corner, so orders are on the rise. Sazali is confident that the production capacity
is capable of meeting the demand.
Required:
a. Advise Sazali as to which pricing method is appropriate for the three types of furniture.
b. Having made the choice of pricing method in (a), calculate the selling price and show the
statement of profit and loss for one month.
C. Discuss briefly other factors that might influence the pricing of Sazali's furniture.
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