FinePrint

MRC 1413: Accounting for Business Decision Making

Case study; Fine Print

Prepared by:
ROHESWARAN GANEASON (MR131107)
KHAIRUL IKHSAN BIN SELAMAT (MR121159)
MUHAMMAD ASHRAF BIN LISMAN (MBS141031)

Submitted to
DR.SULAIMAN ARIS 09 MEI 2015

The A case.
1. FinePrint currently is operating at around full capacity: 150,000 brochures. Should Johnson accept the special order?
No, FinePrint should not accept the special order. Because:
FinePrint is already operating at full capacity. Its equipment cannot bear anymore production.
FinePrint will need to consider outsourcing.
The offer of $10 per 100 brochures is out of the budget, as FinePrint manufacturing per 100 brochures is around $10.25 ($15375 ÷ 150,000 × 100)

1. Assume that monthly printing capacity is 200,000 brochures, current monthly production is 150,000 brochures, and operating costs at the 150,000 level are as presented in case Exhibit 1. Also assume that this order would not affect any of FinePrint’s current business with its regular customers. Should Johnson accept the special order? $ $
TOTAL Sales (25,000 × $10/100) 2500 (150,000 × $17/100) 25,500 28,000
Manufacturing costs:
Direct material [$6000 + (0.04 × 25000)] 7000
Direct Labour – variable [$1500 + (0.01 × 25000)] 1750
Direct Labour – fixed 3000
Manufacturing overhead – variable 1750
Manufacturing overhead – fixed 3375 16875
Non-manufacturing costs:
Sales – variable (no incremental) 1500
Sales – fixed 1875
Corporate – fixed 3750 (24000)
GAINS 4000

Yes, Johnson should accept the special order as it will entirely gain $4000. While without the special order, FinePrint would only make gain of $3000 per month ($25500 – $22,500).

The B case.
Should FinePrint outsource 30,000 brochures to SmallPrint? $
TOTAL sales (30,000 × $17/100) 5100
Cost to SmallPrint (30,000 × $8/100) (2400)
GAINS 2700

TOTAL costs saved: