Roof Berhad is a producer of consumer products as follows:

Product Sales Vol Selling Price/ Unit (RM) Cost/ Unit – of selling price

A 35,800.00 25.00 30%

F 49,000.00 31.00 33%

H 18,800.00 42.00 38%

The company plans to introduce Product L, to be sold for RM55.00, cost of production is RM24.75 per unit.

The expected sales volume is 25,000 units, but it will reduce the existing sales of the current product:

Product A by 20%;

Product F by 30%,

Product H by 50%.

To introduce Product K, the company will be installing a new machine, purchase price of RM80,000, with installation and testing costs of RM12,000. The machine has a life of 5 years, and will be depreciated based on MACRS, 5-year convention. The machine will be sold in year 5 at 10% of the machine cost.

Sales revenues of Ranger Berhad for the next 5 years are as follows: Year 1 2 3 4 5 Sales Revenues 3,203,600.00 3,844,320.00 4,613,184.00 5,500,000.00 4,675,000.00

The production cost is 35% of the sales revenues and fixed cost is RM600,000 in year 1 – 3, and to increase to RM630,000 in the subsequent years.

The interest expenses based on business financing is to be RM52,500 year on year.

The company’s initial outlay is determined to be RM3.6 million and terminal value of the project is to be inclusive of the after-tax cash flow/ tax shield from the disposal of the new machine.

The tax rate is 28% and the company’s cost of capital is 5.37%.

You are required to:

Analyse the current production and determine the followings:

i. Net contribution margin per unit

ii. Total Sales Revenues

iii. Total Net Contribution

iv. Margin of the existing products

v. Profit Margin in percentage of the existing products

Answer rating: 100% (QA)

Answer i Net contribution margin per unit The net contribution margin per unit can be calculated by subtracting the cost of sales from the selling pri... View the full answer