Reference no: EM132963013

Tihani, the owner of Delicious Chicken restaurant conducted studies on cost behaviour and presented the following monthly costs that consist of variable costs and fixed costs, based on its current 5,000 production and sales units:

Total monthly cost (RM)

Direct materials (e.g. chicken, flour, cooking oil) RM 4,100 (100% variable)

Labour (e.g. waiters, chefs) RM 3,600 (75% variable)

Overheads (e.g. utility, rent) RM 3,000 (40% variable)

Administrative costs (e.g. manager's salaries) RM 2,000 (25% variable)

The selling price that Tihani charges is RM4.50 per unit or per piece of chicken.

Required:

Problem a. Calculate monthly fixed cost of Delicious Chicken and variable cost per piece of chicken.

Problem b. Determine the minimum sales unit and sales value of chicken that Tihani has to sell to ensure she does not incur any losses.

Problem c. Calculate the current profit of Delicious Chicken.

Problem d. Tihani is thinking of raising the current price of chicken by 20% which can cause the sales volume to reduce by 25%. Evaluate the effect of these changes on the current profit.

Problem e. Due to the forthcoming festive season, Tihani expects that the variable cost per unit will increase by 10%. If the current selling price is maintained, how many additional units does Tihani need to sell in order to maintain the present profit?

Problem f. Tihani has received an offer to sell 4,000 units to small restaurant near Puncak Alam but the offer requires Tihani to lower the current price by 20%. The offer will not interrupt her regular sales and there is no additional fixed cost will incur. Advise Tihani on whether she should accept the offer.