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JIMIN Industries Bhd is a cosmetic company. The company plans to introduce a new brand of minyak menjus. This new project costs RM7 million for
JIMIN Industries Bhd is a cosmetic company. The company plans to introduce a new brand of "minyak menjus". This new project costs RM7 million for 5 years economic life and the depreci- ation method is straight line to zero basis. There is no salvage value after the economic life of the project. The details of the project are shown below; Total sales per year 100,000 units Selling Price per unit RM55 Variable Cost per unit RM20 Yearly Fixed Cost RM1,500,000 The company has also set a +/- 10% change from its base level, in its quantity sold, selling price, variable and fixed costs to counter for uncertainty in the market conditions. The company's re- quired rate of return is 12% and the relevant tax rate is 28 percent. Required; a) The finance manager planned to increase the OCF and had proposed 3 strategies as fol- lows; Strategy No. 1: To increase the selling price by 20% from the Base Level. Strategy No. 2: To reduce the the variable cost by 20% from the Base Level. Strategy No. 3: To re- duce the the fixed cost by 20% from the Base Level. Compute the OCF for every strategy and choose the best strategy the company should adopt. Justify your suggestion
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