Reference no: EM132556132

Feel the Difference Sdn. Bhd. manufactures bath and beauty products such as soaps, skin creams, lotions and other products primarily for people with dry and sensitive skin. It has just introduced a new line of product that removes the spotting and wrinkling in skin associated with aging. It sells these products in pharmacies and department stores at prices slightly higher than those of other brands because of Feel the Difference's excellent reputation for quality and effectiveness.

Feel the Difference currently has very low utilization of plant capacity. Two years ago, in anticipation of rapid growth, the company opened a new large manufacturing plant, which has yet to be utilized more than 50 percent. Partly for this reason, Feel the Difference has sought new partners and was able, with the help of financial analysts, to locate suitable business partners. The first potential partner identified in this search was a large supermarket chain, All-Mart, which is interested in the partnership because it wants Feel the Difference to manufacture an age cream to sell in its stores. The product would be essentially the same as the Feel the Difference product but would be packaged in the

All-Mart brand name. The agreement would pay Feel the Difference RM10.00 per unit and would allow All-Mart a limited right to advertise the product as manufactured for All-Mart by Feel the Difference. Feel the Difference's CFO has made some calculations and has determined that the direct materials, direct labor and other variable costs needed for the All-Mart order would be about RM5.00 per unit as compared to the full cost of RM12.50 (materials, labor, and overhead) for the equivalent Feel the Difference product.

Required

Question 1: Should Feel the Difference accept the proposal from All-Mart? Why or why not? (Note: Consider both financial and nonfinancial information in your answers).