The new Bestari Cocoa Manufacturing Company has just completed its first year of operation as a producer of cocoa-based nutritious drinks called Great Cocoa. A box of Great Cocoa is sold at a price of RM40 and the costs involved in making and marketing the product are as follows:

Kos-Kos

RM

Cost per unit:

Direct materials

Direct labor

Variable manufacturing overhead

Sales and administration changed

12

6

5

3

Fixed manufacturing overhead

Fixed administrative and selling expenses

300,000

120,000

In the first year of operation, the Company produced 50,000 boxes of Great Cocoa and managed to sell 42,000 boxes.

Be required:

Calculate:

1) Determine the break-even point in units and ringgit.

2) How much sales revenue must be generated to earn the target profit equivalent to a net income after tax of RM210,000? Assume the tax rate is 40%. Based on the sales revenue calculation, calculate the margin of safety in ringgit.

3) The company plans to increase its fixed advertising expenditure by another RM40,000 because it expects sales to increase by 3,000 units. What effect does this plan have on the Company's bottom line? Should the Company proceed with it?

4) Calculate the Company's operating leverage. If sales increase by 20%, what is the estimated increase in profit?

Answer rating: 100% (QA)

Breakeven point in units and ringgit Total fixed costs Fixed manufacturing overhead Fixed administrative and selling expenses Total fixed costs RM3000... View the full answer