b

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Case study 1 LMVH Corp produces and sells three (3) products: laptop bags, back packs, and handbags. All products produced by LMVH Corp go through two production divisions: Division A and Division B. Details for laptop bags produced by LMVH Corp are as follows: Particulars Division A Division B $25 Direct materials cost per unit $30 Direct labour cost per unit $30 $45 Investment in plant and machinery (annual) $2,500,000 $1,500,000 Variable production overheads amounted $6 per labour hour and the budgeted fixed production overheads amounted to $8 per labour hour. The labour rate in Division B is 50% higher than the labour rate in Division A. Each laptop bag requires 2 labour hours in division A. Variable selling and distribution overheads relating to laptop bags amount to $20 per unit. LMVH Corp aims to produce 1,500 laptop bags per month which would require 30% of the annual practical capacity at both the divisions. Required (a) Assist LMVH Corp in determining the selling price of laptop bags if the company wishes to generate a contribution equivalent to 60% of capital employed. (b) Determine the full manufacturing cost per unit of laptop bags and prepare an absorption costing income statement for the laptop bags product line of LMVH for the year 2021. For the year 2021, LMVH Corp had no opening stock of laptop bags. 16,800 laptop bags were produced during the year 2021. However, only 15,000 laptop bags were sold during the year 2021 at a selling price as determined by you in requirement (a) above. (10 + 10 = 20 Marks)