M$-$Shock recently began production of a new product, a smartwatch with a capital investment amounting to RM$1,600,000.$ For the first year, the company's target is to earn a net profit equal to $10\%$ of the initial investment. The cost of producing and selling $20,000$ units of the smartwatch is estimated as follows:

RM

Price per unit $110$

Variable cost per unit:

Direct materials $10$

Direct labor $6$

Direct overhead $4$

Factory overhead rate expenses $5$

Selling and administrative expenses $25$

Total variable cost $50$

Fixed Cost:

Factory overhead $700,000$

Selling and administrative expenses $400,000$

Instructions:

a$)$ Calculate contribution margin per unit and break$-$even in unit.

b$)$ Determine the unit to be sold to meet the targeted net profit for the first year.

c$)$ Assume that the current sales are around $22,000$ units of smartwatches per year, determine the highest percentages of sales decline before the company starts to suffer net loss.

d$)$ Please suggest two $(2)$ ways the company can improve its margin of safety.

e$)$ The company has received a special offer from the National Sport Council to buy $5,000$ unit smartwatches for RM$60$ each. This is one time order and this offer would not give an additional fixed overhead cost, but it would give an additional RM$23,000$ in administrative expenses. Show your calculation to help the M$-$Shock to accept or reject the special offer.

Answer rating: 100% (QA)

Answer MShock Smartwatch Profitability Analysis a Contribution Margin and BreakEven Point Selling Price per unit RM110 Variable Cost per unit Direct M... View the full answer