To date, this year, $90000$ units have been produced and sold. An additional $22500$ Question $2$

$(25$ marks$)$

$2\mathrm{.}1$

Femino Enterprises produces product $Z$ that it sells for $R63$ each. The costs of

producing and selling $120000$ units of product $Z$ are estimated as follows:

units are expected to be sold on the domestic market during the remainder of the year. Femino Enterprises received an offer from Zambesi Traders for $6000$ units of product Z at R$42$ each. Zambesi Traders will market the product in Zambia under its own brand name, and no additional selling and administrative expenses associated with the sale will be incurred by Femino Enterprises. The sale to Zambesi Traders is not expected to affect domestic sales of product Z and the additional units could be produced during the current year using excess capacity.

Required

$2\mathrm{.}1$ Should the proposal be accepted? Motivate your answer $(10$ marks$)$

$2\mathrm{.}2$ Dubai Ltd needs a component for one of its products. It can subcontract production of the component to a subcontractor who can provide the component at R$20$ each. Dubai Ltd can produce the component internally for total variable costs of R$15$ per component. Dubai Ltd has no spare capacity, so it can only produce the component internally by reducing its output of another of its products. While it is making each component it will lose contributions $($contribution margin$)$ of R$12$ from the other product.

$2\mathrm{.}1$ Should the component be subcontracted or produced internally? Motivate your

answer. $(10$marks$)$

$2\mathrm{.}2$ Name two problems Dubai Ltd may experience if it decides to subcontract any of its components. $(5$ marks$)$