1. Wonderful Bubbles Company is considering two alternative proposals for expansion into the region

W that include Area X, Y and Z, described as follow:

Alternative 1: Construct a single plant in Area X, with a monthly production capacity of 300,000 boxes, a monthly fixed cost of RM262,500, and a variable cost of RM3.25 per box.

Alternative 2: Construct three plants, one each in Area X, Y and Z with capacities of 120,000, 100,000, and 80,000 respectively. Each plant has a monthly fixed cost of RM120,000, RM110,000 and RM95,000. Variable costs of these three plants would be only RM3 per box.

To achieve these cost savings, sales from each smaller plant would be limited to demand within its own area. The total estimated monthly sales volume of 200,000 boxes in these three areas is distributed into: 80,000 boxed in Area X, 70,000 boxes in Area Y, and 50,000 boxes in Area Z.

Answer the following questions with the relevant calculation:

(a) Assume that a wholesale price is RM5 per box. Calculate the break-even output level for Alternative 1 and 2. (10 marks)

(b) Assume that the sales are at the projected levels. Which alternative expansion proposal provides Wonderful Bubbles with the highest profit per month based on the quantities and prices in part (a)? (9 marks)

(c) If sales increase to production capacities, which alternative would prove to be more profitable? (6 marks)