9 Highlight(b) Ahmed Manufacturing LLC is a specialty component manufacturer with idle capacity. Management would like touse its extra capacity to generate additional profits. A potential customer has offered to buy 9,500 units ofcomponent Y. Each unit of Y requires 6 units of material X and 4 units of material Z. Data concerning these twomaterials follow:MaterialUnits in Stock Original Cost/Unit Current market Price/unit Disposal Value/unit5,74039,620OMR4.80OMR5.50OMR5.25OMR5.35OMR5.15OMR4.35Material X is in use in many of the company's products and is routinely re-stock. Material Z is no longer used bythe company in any of its normal products and existing stocks would not be re-stock once they are used up.What would be the relevant cost of the materials, in total, for purposes of determining theminimum acceptable price for the order for component Y?(c) The management of Ahmed Manufacturing LLC is considering dropping product RC. Data from the company'saccounting system appear below:SalesVariable CostsFixed manufacturing CostsFixed Selling and Administrative CostsOMR180,000OMR56,000OMR49,000OMR35,000In the company's accounting system, all fixed expenses are fully allocated to products. Further investigation hasrevealed that OMR43,000 of the fixed manufacturing expenses and OMR25,000 of the fixed selling andadministrative expenses are avoidable if product RC is discontinued.What would be the effect on the company's overall net operating income if product RC weredropped? (a) Ahmed Manufacturing LLC is considering using stocks of an old raw material in a special project. The specialproject would require all 220 kilograms of the raw material that are in stock and that originally cost the companyOMR1,804 in total. If the company were to buy new supplies of this raw material on the open market, it wouldcost OMR8.55 per kilogram. However, the company has no other use for this raw material and would sell it atthe discounted price of OMR5.75 per kilogram if it were not used in the special project. The sale of the rawmaterial would involve delivery to the purchaser at a total cost of OMR9.70 for all 220 kilograms.(i) Calculate the relevant costs of the 220 kilograms of the raw material when deciding whetherto proceed with the special project; and(ii) Explain why you consider such costs as relevant to the decision.(b) Ahmed Manufacturing LLC is a specialty component manufacturer with idle capacity. Management would like touse its extra capacity to generate additional profits. A potential customer has offered to buy 9,500 units ofcomponent Y. Each unit of Y requires 6 units of material X and 4 units of material Z. Data concerning these twomaterials follow:Original Cost/Unit Current market Price/unit Disposal Value/unitOMR5.25OMR5.35MaterialUnits in Stock5,74039,620OMR4.80OMR5.50OMR5.15OMR4.35Material X is in use in many of the company's products and is routinely re-stock. Material Z is no longer used bythe company in any of its normal products and existing stocks would not be re-stock once they are used up.What would be the relevant cost of the materials, in total, for purposes of determining theminimum acceptable price for the order for component Y?

Formulas: a.2) Such costs are relevant for the purpose of decision-making as these are computing by…

(b) Ahmed Manufacturing LLC is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 9,500 units of component Y. Each unit of Y requires 6 units of material X and 4 units of material Z. Data concerning these two materials follow: Material Units in Stock Original Cost/Unit Current market Price/unit Disposal Value/unit 5,740 39,620 OMR4.80 OMR5.50 OMR5.25 OMR5.35 OMR5.15 OMR4.35 Material X is in use in many of the company's products and is routinely re-stock. Material Z is no longer used by the company in any of its normal products and existing stocks would not be re-stock once they are used up. What would be the relevant cost of the materials, in total, for purposes of determining the minimum acceptable price for the order for component Y? (c) The management of Ahmed Manufacturing LLC is considering dropping product RC. Data from the company's accounting system appear below: Sales Variable Costs Fixed manufacturing Costs Fixed Selling and Administrative Costs OMR180,000 OMR56,000 OMR49,000 OMR35,000 In the company's accounting system, all fixed expenses are fully allocated to products. Further investigation has revealed that OMR43,000 of the fixed manufacturing expenses and OMR25,000 of the fixed selling and administrative expenses are avoidable if product RC is discontinued. What would be the effect on the company's overall net operating income if product RC were dropped?

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q