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QUESTION - Jasa Setia Sdn Bhd manufactures a product which has been in production since 2002. The demand for the product is in decline. The summary of comprehensive income statement for the year ended 31 December 2021 is as follows:
RM
Sales
850,000
Less cost of sales
400,000
Gross profit
450,000
Variable expenses
165,000
Fixed expenses
300,000
465,000
Net loss
(15,000)
The management accountant has researched several strategies to restore profitability for the current financial year.
(1) Increase the price of the product by 30 percent which will reduce sales volume by 20 percent. In order to improve the appearance of the product, packaging costs for each item will double. The present packaging cost constitute 20 percent of the variable expenses.
(2) Launch an advertising campaign at a cost of RM60,000 per annum. This will increase the sales volume by 30 percent. The original selling price does not change.
REQUIRED -
(a) Calculate the forecast gross and net profits for the current financial year under each of the strategies.
(b) In your opinion, which strategy that the company's workforce will prefer? Justify your answer.
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