Reference no: EM132675752

Question - Keledar Sdn Bhd produces safety helmets for motorcycles. The production capacity is 45,000 helmets per year, and is currently operating at 85 per cent capacity. Variable manufacturing costs are RM10 per unit. Fixed manufacturing costs are RM400,000 per annum. The helmets are normally sold directly to its customers at RM25 each. The company has received a one-time 'special order' from Sikal Sdn Bhd to purchase 5,000 helmets at RM13 per unit.

Required -

a) Calculate the available production capacity.

b) Calculate the contribution margin per unit in RM and in percentage (%) for both the current production and the special order.

c) Compute the current profit and the profit from special order, assuming that the company manage to sell whatever it produces. Should the special order be accepted?

d) Would you recommend the special order to be accepted by Keledar Sdn Bhd if Sikal Sdn Bhd required 10,000 helmets instead? What is the opportunity cost involved?

e) List 4 factors that the management should consider before accepting or rejecting the special order.

f) After due consideration, the company has decided to reject the special order. Compute the breakeven point for current production in RM and units respectively.

g) In order to boost sales, the marketing manager has proposed a strategy to reduce the price of the safety helmets by RM2 each, and to spend additional RM10,000 in advertising and promotion. The marketing manager is confident that the sales will increase to 45,000 units with this strategy. Compute the new breakeven point and profit of the company. Should this strategy be undertaken by the company?