Reference no: EM132600493

Imtiaz Sdn Bhd (ISB) is a producer of a special type of battery operated mini massager, the MINIm. Its current production level is 16,000 units per month. This represents 80% of its production capacity.

Variable manufacturing costs are currently RM16 per unit. Fixed manufacturing costs are RMI 12,000 per month. ISB pays a 9% sales commission to its sales people and its fixed administrative expenses per month is RM600,000. Its average sales per month is RM640,000.

A special order received from PT Indo Putra (PTIP), a small medium enterprise (SME) in Indonesia, would enable ISB to operate at 100% capacity. The foreign company offered to pay 75% of ISB 's current selling price per unit. If the order is accepted, ISB will have to spend an extra RM4 per unit to package the product for overseas shipping. Additionally, ISB would need to lease a new stamping machine to imprint PTIP's logo on the product. This would cost ISB RM5,000 per month. The special order would require a total sales commission of RM7,000. The sales commission is variable with the number of units sold.

Required:

Question a. What is the manufacturing cost of producing one unit of ISB 's product for regular customers?

Question b. Should management of ISB accept the special order from PT Indo Putra? Show all calculations.

Question c. What is the lowest price that ISB could accept for the special order to earn a net income of RM2.40 per unit?

Question d. Assume that ISB is now working at 90% capacity and PTIP would like to purchase 3,000 units of MINI-m. What is the minimum price that ISB is willing to accept for this special order?

Question e. Discuss THREE (3) qualitative factors that ISB's management should consider in making its decision.