Question

SunnyDay Sdn.Bhd. Is a company that sells scarves. Each of its scarves has its own sewn logo. The cost of each logo is ￥27. Darryl, the company's operations manager, received $20 per logo from an outside carrier. SunnyDay Sdn. bhd. Produces 100,000 logos for scarves every month. Its last cost accounting statement is: Direct Material =$550,000, Direct cost=$800,000, Variable overhead=$350,000, Fixed cost=$1,000,000, The Total cost = $2700000.

As the company's accountant, do you suggest Darryl accept the offer from this supplier? Why is that?

Answer 1

Total cost formula is given by;

Total Fixed Cost+Total Variable Cost

$TC=TFC+TRC$

$TC$ $=\$$ 2,700,000

Total Revenue Formula is given by;

Price multiply by Quantity

$TR=P\times Q$

$\$$ $20×100,000=\$2,000,000$

$TR=\$2,000,000$

Cost is higher than the revenues so the company should not take the offer.