Hakita Manufacturing sales slumped badly in 2018. For the first time in history, it operated a loss. The company's income showed the following results from selling 610,000 units of products in Table Q1(a) :

Table Q1(a): Cost information

Item Total

(RM)

Net sales 2,440,000

Total cost and expenses 2,490,000

Net Loss (50,000)

Costs and expenses consisted of the following as per Table Q1(b) below:

Table Q1(b): Cost information

Item Total Variable Fixed

(RM) (RM) (RM)

Cost of goods sold 1,980,000 1,320,000 660,000

Selling expenses 310,000 72,000 238,000

Administrative expenses 200,000 48,000 152,000

Total Costs 2,490,000 1,440,000 1,050,000

The management of Hakita Manufacturing are considering two alternatives to boost up the profit. However each alternative will have different effects on the costs.

Alternative 1 :Purchasinga new automated equipment that will change the proportion between variable and fixed cost of goods sold to 75 percent variable and 25 percent fixed. It will also caused the fixed cost of administrative expenses to be reduced to RM82,000 and its variable cost remains the same. Selling expenses cost reduced to RM62,000 for variable and to RM193,000 for fixed cost and unit selling price remains at RM4 per unit.

Alternative 2 :Increasing the unit selling price by 8 percent to receive total net sales of RM 2,635,200 and changing the compensation of salespersons from fixed annual salaries totaling RM210,000 to total salaries of RM70,000 in selling expenses fixed cost. The total selling expenses fixed cost are inclusive of RM18,000 apart from the salesperson fixed annual salaries cost. Whilst total variable selling expenses cost will be added with a 12% commission on net sales. Fixed administrative expenses reduces to RM137,000 whilst other costs (variable administrative cost andcosts of goods sold) remain unchanged.

(a) Calculate the break even point in dollars for :

(i) Alternative 1.

(8 marks)

(ii) Alternative 2.

(8 marks)

(b) Compute the sales in dollars to be achieved for both alternatives assuming that the management targets a net profit of RM40,000.

(3 marks)

(c) Determine the margin of safety ratio for both alternatives.

(4 marks)

(d) Identifythe best alternative that the management of Hakita Manufacturing should take based on the answers of Q1 a(i),Q1(a)(ii) and Q1(b)

(2 marks)