Reference no: EM133024200

Question - RED Sdn Bhd produces two types of product namely Rosy and Rose that are produced using the same type of material, which is material Z. Rosy uses two (2) kg of materials Z for every unit produced and Rose uses five (5) kg. Material Z is imported from China and currently RED has 16,000 kg of material Z in stock. For the coming year of 2022, RED plans to import an additional 8,000 kg of material Z to meet the expected demand of 2,000 units of Rosy and 4,000 units of Rose. The unit contribution margin of Rosy and Rose is RM30 and RM60 respectively. RED has received information that, due to the pandemic of Covid-19, the supplier has shut down 50% of its plant and cannot export the material to other countries. Consequently, RED will not be able to import the 8,000 kg it planned to use in the coming's year production since there is no other source of material.

Required -

a. Calculate the total contribution margin of the company if it could manufacture and sell 2,000 units of Rosy and 4000 units of Rose.

b. Suggest to the company on the optimal usage of 16,000 kg material Z in producing Rosy and Rose for the coming year.

c. Calculate the total contribution margin could be earned by the company based on your recommendation in (b).