Brunswick Sdn. Bhd. (Brunswick) has just started its business in the beginning of Year 2019. Brunswick manufactures and sells a single product, barrel. The income statement for Brunswick presented below shows the operating results for the fiscal year just ended 2019. Brunswick had sold 1,800 tonnes of barrels during that year. The manufacturing capacity of Brunswick's facilities is 3,000 tonnes of barrels.

Brunswick Sdn Bhd

Income Statement for the year ended 2019

RM RM

Revenues 900,000

Variable costs:

Manufacturing 315,000

Non-manufacturing 180,000 495,000

Contribution margin 405,000

Fixed costs:

Manufacturing 90,000

Non-manufacturing 157,500 247,500

Profits 157,500

In the recent management meeting, the sales manager is discussing with the team to introduce a few proposals on next year plan in order to maximize the profit earned by Brunswick. As the sales manager is unsure on the uses of cost volume profit analysis in the short term decision making, you are appointed as the management accountant to closely assist him.

There are two proposals being introduced in the recent management meeting as follows:

Proposal 1:

The sales volume is estimated to be 2,100 tons for next year, and the selling price and cost

behaviour patterns to remain the same next year.

Proposal 2:

Assume Brunswick estimates the selling price per tonne will decline 10% next year, variable cost

will increase by RM40 per tonne and total fixed costs will remain unchanged.

Required:

(a) Under proposal 1, compute how much net income Brunswick expects to earn next year.

(6 marks)

(b) Under Proposal 2, compute how many tonnes must be sold next year to earn a net income

of RM157,500. (6 marks)

(c) Prepare a breakeven chart for Proposal 1 and 2 separately. (8 marks)

You are approached by the sales manager to prepare a detailed report to him based on your findings.