Chineke & Sons manufacture a single product. The following is the statement for the year ended 30 April 2019, in which only 75% of the normal production capacity was utilized.
| N$ | |
| Sales at N$250 per unit | 3 000 000 |
| Less: Production costs | (1 872 000) |
| Direct material | 792 000 |
| Direct labour | 240 000 |
| Variable overheads | 240 000 |
| Fixed overheads | 600 000 |
| Gross profit | 1 128 000 |
| Less: Selling and administration costs | (560 000) |
| Fixed | (200 000) |
| Sales commission (12% of sales) | (360 000) |
| Net profit | 568 000 |
Additional information:
Budget for 2019 – 2021:
During April 2020, management planned the budget and considered various alternatives for the year 1 May 2019 to 30 April 2021. The following conclusions were made; inter alia.
- All variable costs will increase by 5%.
- Sales could increase to 80% of the normal production capacity if the selling price is decreased by 10%.
Special order:
For October 2020, a special order was received based on a selling price of N$140 per unit. The following information is applicable to this order if it is accepted:
- The company will increase production to 80% of the normal capacity, 50% of the remaining capacity will be utilized by this order.
- The order must be delivered in equal monthly quantities during the year ending 30 April 2021.
- A temporary assistant to the production manager will have to be appointed at N$4 000 per month for the period to complete the order.
- A commission of only 3% in respect of this order will be payable to the sales manager.
Required:Calculate the relevant salary to the assistant related to the special order
1 Answer