M - Shock recently began production of a new product, a smartwatch with a capital investment amounting
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Question:
MShock recently began production of a new product, a smartwatch with a capital investment amounting to RM For the first year, the company's target is to earn a net profit equal to of the initial investment. The cost of producing and selling units of the smartwatch is estimated as follows:
RM
Price per unit
Variable cost per unit:
Direct materials
Direct labor
Direct overhead
Factory overhead rate expenses
Selling and administrative expenses
Total variable cost
Fixed Cost:
Factory overhead
Selling and administrative expenses
Instructions:
a Calculate contribution margin per unit and breakeven in unit.
b Determine the unit to be sold to meet the targeted net profit for the first year.
c Assume that the current sales are around units of smartwatches per year, determine the highest percentages of sales decline before the company starts to suffer net loss.
d Please suggest two ways the company can improve its margin of safety.
e The company has received a special offer from the National Sport Council to buy unit smartwatches for RM each. This is one time order and this offer would not give an additional fixed overhead cost, but it would give an additional RM in administrative expenses. Show your calculation to help the MShock to accept or reject the special offer.
Related Book For
Financial and Managerial Accounting
ISBN: 978-1285078571
12th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
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