Dear tutors, this is my 1st time taking accountings and would love for you to guide me on related questions like this. I will study your formats to further improve my understanding. thank you!

Question 1

Kipas Sdn Bhd produces ceiling fans, and is currently operating at 95% of its capacity of 100,000 fans per month. The company has just received a one-time special order from Hong Kong Trading to purchase 5,000 fans at RM110 per unit. If Kipas choose to accept this order, it has to incur an additional fixed printing cost of RM50,000 for the packaging material. The data provided is as follows:

Monthly Data

Units produced and sold

95,000

Normal selling price/unit

RM150

Variable cost/unit

RM80

Total fixed cost

RM3,500,000

Question: The Marketing Manager of Kipas has proposed to reduce the selling price by 5%, and coupled with heavy advertising and promotion activities which will cost the company RM200,000, the sales volume is expected to increase by 20%. Should the company adopt this proposal? Support your answer with appropriate calculation.

(6 marks)