Management Accounting

RUBBER Co sells electronic equipment and is about to launch a new product onto the market. It needs to prepare its budget for the coming year and is trying to decide whether to launch the product at a price of RM30 or RM35 per unit. The following information has been obtained from market research: Price per unit RM30 Sales Price per unit RM35 Sales Probability volume Probability volume 0.4 120,000 0.3 108,000 0.5 110,000 0.3 100,000 0.1 140,000 0.4 94.000 RUBBER Co has also provided additional notes on the costs information, as follow: 1. Variable production costs would be RM12 per unit for production volumes up to and including 100,000 units each year. However, if production exceeds 100,000 units each year, the variable production cost per unit would fall to RM1 1 for all units produced. 2. Advertising costs would be RM900,000 per annum at a selling price of RM30 and RM970,000 per annum at a price of RM35. 3. Fixed production costs would be RM450,000 per annum. You are required to: (a) Calculate each of the six possible profit outcomes which could arise for RUBBER Co in the coming year. Show workings. (8 marks) (b) Calculate the expected value of profit for each of the two price options and recommend, on this basis, which option RUBBER Co would choose. Show workings and explain the answer by referring to the workings