Green Manufacturing Sdn Bhd manufactures variety type of machines and sells them throughout Malaysia. The company is now considering to sell a machine to make ice-cream which requires initial investment of RM1.2 million. Since the company operates at full capacity, the management decides to outsource the machine from an outside supplier and will negotiate the price. After conducting market research, the company estimates to sell 100 ice cream machines and the machine can be sold at RM5,800 per unit. The estimated variable selling expenses would be RM800 per machine. Required: a. If the company requires a 15% return on investment (ROI), calculate the target cost to sell 100 units of machine. (3 marks) b. Determine the maximum amount that the company would willing to pay to the outside supplier for one unit of machine. (2 marks) c. Assume that the outside supplier refuses to supply the machine at the price that the company is able to earn 15% required ROI. Advise the company on the options that could be taken to ensure that the idea of selling ice cream machine is successful. (6 marks) d. Explain whether you agree with the statement that full cost-plus pricing is better than marginal cost-plus pricing because if a company sets a selling price above full cost, it will not operate at a loss.' (4 marks) 

Answer rating: 100% (QA)

a To calculate the target cost to sell 100 units of the machine we need to first calculate the total revenue that the company expects to generate from selling 100 machines Total revenue Number of mach... View the full answer