Reference no: EM132990278

Question - Part One - Clean-Soap (M) Sdn. Bhd. produces a special type of chicken sausage for its customers in Malaysia. The following information was provided by the company for the First Quarter of 2019:

Per unit: RM

Selling price 40

Production costs:

Direct materials 10.00

Direct labour 6.00

Variable factory overheads 2.00

Fixed selling costs per quarter 150,000

Fixed production costs per quarter 135,000

Actual details for the months are as follows:

January February March

Production in units 60,000 65,800 64,000

Sales in units 56,000 59,600 65,800

Additional information:

(i) The opening inventory on 1 January 2019 was 10,500 units.

(ii) All the fixed costs would be increased by 20% for the entire first quarter respectively, and

(iii) Fees paid for sales catalog (variable administration cost) will increase 20% when total unit sales exceed target 50,000 units, and 30% when exceed target 65,000.

(iv) The management will reward the sales staff with 5% of sales allowance when target 65,000 units is achieved.

(v) The administration costs and sales allowance will be calculated based on percentage of total sales values each month.

Required - Construct an income statement for each of the three months ended 31 March 2019, using marginal costing method.

Part Two - The factory has the policy of giving out extra allowance to all the workers every month. The management forecasts that the allowance will be increasing steadily by 20% every year as the production capacity continues to moderately increase over the next 4 years.

Required - Identify and describe the type of cost behavior of the allowance in both short term and long term with simple chart(s).