ConcreteFits is a Stellenbosch-based company that manufactures reflector vests mainly for construction workers. The comp
Posted: Sun Jun 05, 2022 5:12 pm
ConcreteFits is a Stellenbosch-based company that manufactures
reflector vests mainly for construction workers. The company makes
reflector vests for WeBuild, a major South African construction
company. For many years, ConcreteFits has supplied all of WeBuild’s
reflector vest requirements, but this changed from 2022. From
January 2022, WeBuild has been sourcing some of their reflector
vests from a cheaper Chinese manufacturer. Whereas ConcreteFits has
operated at around 100% of production capacity in the past few
years, the decision by WeBuild meant that ConcreteFits’ production
capacity between January and April 2022 dropped to an average of
just 70% of full capacity.
Now in May 2022, ConcreteFits is considering a big reflector
vest order which it has received from RoadSide. RoadSide is
WeBuild’s biggest competitor in the Western Cape. As the management
accountant at ConcreteFits, you are asked to evaluate whether the
company should accept the RoadSide order.
The summarized variable costing income statement for the month
of April 2022 is presented below. All the sales of these reflector
vests were to WeBuild:
Sales (20 000 reflector vests at R140 each)
R2 800 000
Variable costs
-R1 400 000
Contribution margin
R1 400 000
Fixed costs
-R1 420 000
Net income/ (loss)
-R20 000
Production on the RoadSide order will start on 1 July 2022 and
must be completed by the end of July. The RoadSide order is for 15
000 reflector vests.
ConcreteFits’ maximum production capacity is 30 000 reflector
vests per month, and WeBuild have already placed an order of 20 000
reflector vests to be produced in July.
The following information applies to the RoadSide order:
Direct material
R40
Direct labour
R18
Variable overhead
R12
R70
Using relevant costing principles, prepare a financial
analysis of the RoadSide, and advise ConcreteFits management
whether or not they should accept the RoadSide order.?
reflector vests mainly for construction workers. The company makes
reflector vests for WeBuild, a major South African construction
company. For many years, ConcreteFits has supplied all of WeBuild’s
reflector vest requirements, but this changed from 2022. From
January 2022, WeBuild has been sourcing some of their reflector
vests from a cheaper Chinese manufacturer. Whereas ConcreteFits has
operated at around 100% of production capacity in the past few
years, the decision by WeBuild meant that ConcreteFits’ production
capacity between January and April 2022 dropped to an average of
just 70% of full capacity.
Now in May 2022, ConcreteFits is considering a big reflector
vest order which it has received from RoadSide. RoadSide is
WeBuild’s biggest competitor in the Western Cape. As the management
accountant at ConcreteFits, you are asked to evaluate whether the
company should accept the RoadSide order.
The summarized variable costing income statement for the month
of April 2022 is presented below. All the sales of these reflector
vests were to WeBuild:
Sales (20 000 reflector vests at R140 each)
R2 800 000
Variable costs
-R1 400 000
Contribution margin
R1 400 000
Fixed costs
-R1 420 000
Net income/ (loss)
-R20 000
Production on the RoadSide order will start on 1 July 2022 and
must be completed by the end of July. The RoadSide order is for 15
000 reflector vests.
ConcreteFits’ maximum production capacity is 30 000 reflector
vests per month, and WeBuild have already placed an order of 20 000
reflector vests to be produced in July.
The following information applies to the RoadSide order:
Direct material
R40
Direct labour
R18
Variable overhead
R12
R70
Using relevant costing principles, prepare a financial
analysis of the RoadSide, and advise ConcreteFits management
whether or not they should accept the RoadSide order.?