80.2K

Verified Solution

Link Copied!

Question 2 (Total Marks: 17) Alum Ltd makes and sells high quality aluminium doors and windows. The following estimated revenue and cost information from the company's activity-based costing system is available for 2018 3,000 Doors 5,000 Windows Revenues Direct materials and direct labour costs Depreciation on equipment used exclusively by each product line Marketing and distribution costs $450,000 $500,000 350,000 58,000 240,000 42,000 $40,000 (fixed) + ($500 per shipment x 30 shipments) 55,000 $50,000 (fixed)+ ($500 per shipment x 100 shipments) Fixed administration costs of the company allocated to product lines on the basis of revenues Corporate costs allocated to product lines on the basis of revenues Total costs Operating profit (loss) 100,000 90,000 45,000 472,000 100,000 50,000 658,000 S(22,000) $(158,000) Additional information a) On 1 July 2017, the equipment for each product line has a carrying amount of $100,000 and zero disposal value. Any equipment not used will remain idle b) Fixed marketing and distribution costs are avoidable if the line is discontinued c) Fixed administration costs of the Division and corporate costs are unavoidable d) Each shipment includes 100 doors or 50 windows Required 1. On the basis of financial considerations alone, should Alum Ltd discontinue the door's product line for the year, assuming the released facilities remain idle? What would be the financial effect of dropping this product line? 6 marks 2. Alum Ltd received a one-time order from overseas for 1,500 doors at $100 per door Alum has to pay transport costs for $18,000 but no additional marketing and distribution costs for this order a. If Alum has enough excess capacity for this order, should Alum Ltd accept this b. If Alum is working at full capacity, what would be the minimum price to accept the order? What would be the financial effect of accepting the order? 4 marks order and decrease sales by 1,500 doors to regular customers? 3 marks

Answer & Explanation Solved by verified expert

See Answer