The Cheap Chair Company (CCC) designs and manufactures chairs. It competes in the market by producing low-priced chairs. It has a design department which uses the latest computer software to help with the design process. This software's license cost is the main cost incurred by the design department. The chairs are then manufactured in CCC'sfactory which usually operates at below full capacity.

CCC prides itself at being able to design chairs that give it the flexibility to use different types of raw materials to manufacture the same chair. The decision on which materials to use is left to the factory manager and the purchasing manager. The purchasing manager is responsible for sourcing the raw materials from CCC's suppliers before the materials are required by the production team.

CCC has acustomer (POP). POP gets CCC to design chairs that suits POP's functionality and price requirements. CCC would then manufacture these chairs for POP.Based on a recent customer profitability analysis, POP has been found to be one of CCC's unprofitable customers (see analysis below). However to the relief of CCC, POP has unexpectedly just filed for bankruptcy and hence will not be purchasing chairs from CCC anymore.

POP is an unprofitable customer since the revenue CCC gains from POP is less than the total cost CCC incurs to serve POP.See the analysis below for the most recent month. These numbers have beenstable over the past twelve months and would have been expected to remain stable over the next twelve months.

Analysis of POP for the most recent month:

CCC's total revenues from chairs sold to POP$200,000CCC's total variable cost of chairs sold to POP$180,000CCC's total fixed cost allocated to POP*$45,000Total loss incurred by CCC for serving POP$25,000 (loss)

* Most of this cost comes from the allocation of the design department cost to POP.

A.Do you agree with the following statement "The cost of materials for CCC's chairs are locked-in during the design phase". Use specific information from the question to justify your answer. [2 marks]

B.Apart from the quality and suitability of the raw material to be used (to manufacture CCC's chairs), state TWO other factors that would be considered by the factory manager and/or the purchasing manager when deciding on the type of raw materials to purchase and use to manufacture CCC's chairs. Explanations are not required. [2 marks]

C.Which long-term pricing approach is likely to be more appropriate for CCC when determining the prices for the chairs it designs and makes for POP? Provide the ONEkey reason based on information from the question to justify your answer. [2 marks]

D.Would CCC's expected monthly net profit in the monthimmediately afterthe loss of POP as a customer likely to be higher OR lower OR the same, compared to its expected monthly profitbeforePOP filed for bankruptcy? Explain. Calculations are not required. Assume macroeconomic conditions and CCC's relationship with its other customers (in terms of sales) remain unchanged. [2 marks]

E.Would CCC's expected monthly net profitin 12 months afterthe loss of POP as a customer likely to be higher OR lower OR the same, compared to its expected monthly profitbeforePOP filed for bankruptcy? Ifthe answer to this question is 'it depends', then clearly state and explain the factor that would affect the answer to this question using specific information from the question. Calculations are not required. Assume macroeconomic conditions and CCC's relationship with its other customers (in terms of sales) remain unchanged. [2 marks]

F.Would your answer toPart Dchange if CCC 's factory was operating at full capacity (instead of at below full capacity)? Explain.[ 2 marks]