Question E2

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	125
Production costs:
Direct materials	65.00
Direct labour	24.00
Variable factory overheads	11.00
Fixed selling costs per quarter	165,000
Fixed production costs per quarter	221,000

Actual details for the months are as follows:

	January	February	March
Production in units	90,000	88,500	92,000
Sales in units	87,000	85,000	88,500

Additional information:

1. The opening inventory on 1 January 2019 was 12,500 units.
2. Upon revision, all the quarterly fixed costs is expected to increase by 10%, and
3. Fees paid for sales catalog (variable administration cost) will increase 10% when total unit sales exceed target 88,000 units, and 15% when exceed target 90,000.
4. The management will reward the sales staff with 5% of sales allowance when target 86,000 units is achieved.(variable sales cost)
5. The administration costs and sales allowance will be calculated based on percentage of total sales values each month.

Required:

Prepare an income statement for each of the three months ended 31 March 2019, using marginal costing method. (19 marks)

Part Two

With the current economic climate, management has decided to introduce a new pay scheme to incentivize sales workers. Sales workers are given a basic salary of RM1,000 per month and for each sales of chicken sausage is given RM0.50 as commission.

Required:

Identify and describe the type of cost behavior of the above incentive scheme with simple chart(s). (6 marks)