Mesra Alam Sdn. Bhd. produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows:

Sales

RM540,000

Variable expenses..........

360,000

Contribution margin.......

180,000

Fixed expenses...............

120,000

Net operating income.....

RM60,000

The company produced and sold 120,000 kilograms of product during the month. There was no beginning or ending inventories.

Required:

3 (b)An important part of processing is performed by a machine that is currently being leased for RM 20,000 per month. Mesra Alam has been offered an arrangement whereby it would pay RM0.10 royalty per kilogram processed by the machine rather than the monthly lease.

(i)Should the company choose the lease or the royalty plan? Why?

(ii)Under the royalty plan, compute break-even point in kilograms.

(iii)Under the royalty plan,compute break-even point in dollars.

(iv)Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of RM 90,000.