Research the information given below and reply the following questions independently:
1.) Prospective customer in unrelated market offered to buy 2000 andle grinders for R164000. Angle grinders would be produced in addition to 200000 units sold. Regular sales commission on 2000 angle grinders would still be paid by Pringle Limited. Must the offer be accepted?
2.) A supplier offered to produce year's supply of 200000 plastic housings for R12 each. Suppose that Pringle Limited would avoid R700000 of fixed costs allotted to housings if it buys housings. What would be effect on operating profit if it bought rather than made housings? Illustrate your calculations.
INFORMATION
Pringle Limited produces anlge grinders (a power tool). Sales for year just ended were 200000 units at R200. The table below illustrates costs for year ended of plastic housing seperately from costs of electrical and mechanical components.
Electrical & Plastic Angle
mechanical components housing Grinders
Direct materials 8 800 000 1 000 000 9 800 000
Direct labour 800 000 600 000 1 400 000
Variable factory overheads 200 000 400 000 600 000
Other Variable Costs 200 000 - 200 000
Sales commission (10% sales) 4 000 000 - 4 000 000
Fixed Costs 4 440 000 960 000 5 400 000