Reference no: EM132902350

Jokowi Bond Sdn Bhd (JBSB) produces a type of box which is sold for RM15 per unit. The normal annual production and sales for the boxes are 20,000 units.

The following data consist of costs incurred during the year ended 2018:

RM

Direct material          80,000

Direct Labour            50,000

Variable selling expenses  30,000

Administrative expenses (60% variable) 60,000

Fixed manufacturing overhead 20,000

The management accountant of the company is proposing the following alternatives to increase sales for the year 2019 and to reduce the idle capacity:

• Reducing the selling price to RM12 per unit which would lead to an estimated increase in the sales volume by 15%.
• An increase in sales would result in an increase of direct labour cost per unit by 10%.
• Fixed manufacturing overhead is also expected to increase to RM25,000 due to an aggressive advertising campaign planned to boost sales.

Required:

Problem a) Calculate the total variable cost per unit and total fixed expenses for the year 2018.

Problem b) Calculate break even unit and sales for 2018. 

Problem c) Calculate margin of safety in units and value for 2018.

Problem d) Advise JBSB's management on whether they should implement the proposal outlined above for the year 2019. (Show profit comparison).