Egg & Butter Sdn. Bhd. (EBSD) manufactures high quality biscuits that are sold to hotels and...

   

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Egg & Butter Sdn. Bhd. (EBSD) manufactures high quality biscuits that are sold to hotels and restaurants in Kuching, Sarawak. Two months ago, EBSD had prepared a budget for the forthcoming financial year. Details of this are presented below: Sales Less: RM RM 6,000,00 0 Direct materials 2,080,00 0 Direct labour 1,160,00 0 Variable overheads 840,000 Fixed overheads 972,600 Total costs 5,052,60 0 Profit 947,400 The budget above has been prepared on the assumption that unit sales will be 800,000 packets of biscuits. However, due to Covid-19 pandemic, the sales forecast for the year was decreased to 720,000 packets of biscuits. The divisional manager also has decided to increase the advertising budget by RM40,000 and at the same time the company has added a cost of RM0.05 to imprint the name of the product on each packet into the budget. It is expected that selling price per unit remains the same. Required: (a) Based on the forecasted activity for the year, calculate: 0 The expected profit. (1) The breakeven point in packets of biscuits (units). The margin of safety in percentage terms. (iv) The sales units required to earn a profit of RM1,440,000. (b) EBSD is now considering two options to improve profitability for the forthcoming financial year (based on the forecasted activity): Option 1: Decrease the selling price by 20%. It is anticipated that this would increase sales volume by 25% on the forecast sales for the current year. Option 2. Decrease all variable costs by 10% and decrease fixed costs by 10%. This is not expected to have any impact on the sales level. For each of the two options above: 0 Calculate the expected profit. 0 Calculate the breakeven point in packets of biscuits. Recommend which option the company should adopt. Why? L Egg & Butter Sdn. Bhd. (EBSD) manufactures high quality biscuits that are sold to hotels and restaurants in Kuching, Sarawak. Two months ago, EBSD had prepared a budget for the forthcoming financial year. Details of this are presented below: Sales Less: RM RM 6,000,00 0 Direct materials 2,080,00 0 Direct labour 1,160,00 0 Variable overheads 840,000 Fixed overheads 972,600 Total costs 5,052,60 0 Profit 947,400 The budget above has been prepared on the assumption that unit sales will be 800,000 packets of biscuits. However, due to Covid-19 pandemic, the sales forecast for the year was decreased to 720,000 packets of biscuits. The divisional manager also has decided to increase the advertising budget by RM40,000 and at the same time the company has added a cost of RM0.05 to imprint the name of the product on each packet into the budget. It is expected that selling price per unit remains the same. Required: (a) Based on the forecasted activity for the year, calculate: 0 The expected profit. (1) The breakeven point in packets of biscuits (units). The margin of safety in percentage terms. (iv) The sales units required to earn a profit of RM1,440,000. (b) EBSD is now considering two options to improve profitability for the forthcoming financial year (based on the forecasted activity): Option 1: Decrease the selling price by 20%. It is anticipated that this would increase sales volume by 25% on the forecast sales for the current year. Option 2. Decrease all variable costs by 10% and decrease fixed costs by 10%. This is not expected to have any impact on the sales level. For each of the two options above: 0 Calculate the expected profit. 0 Calculate the breakeven point in packets of biscuits. Recommend which option the company should adopt. Why? L

Answer rating: 100% (QA)

a Based on the forecasted activity for the year i Expected profit To calculate the expected profit we need to consider the revised sales forecast the ... View the full answer