Mr. Fil runs a small company by sewing clothes. He has provided the following information: RM The
Question:
Mr. Fil runs a small company by sewing clothes. He has provided the following information:
RM
The selling price is 45.00 a piece
Raw Material 17.00 a piece
Tailor Salary 20.00 a piece
Sewing Machine Depreciation 1,800
Factory Rental 24,000
Tailor Bonus 16,600
Annual sales 630,000 sheets
(Output capacity 14,000 sheets)
He said there was a bonus agreement with the tailor to encourage the tailor to work diligently. Therefore, bonus payments are unavoidable.
He also lists the following strategies to consider:
Strategy I: Increase Sales
He will advertise his factory sewing products and reduce the selling price of a shirt by RM2.00. Advertising costs amount to RM12, 000 and sales are expected to increase to 18,000 pieces.
Strategy II: Increasing Production Capacity
He will buy a new machine that is more efficient at a cost of RM10, 000. The variable cost per unit is expected to decrease to RM34.00 per piece. This machine will be depreciated at an annual rate of 10%. Sales and sales units remain the same (i.e. 14,000 pieces) and two production supervisors with a monthly salary of RM1, 200 each will also be taken.
You must calculate fixed costs, changes and selling prices in each strategy before determining profitability.
He asks for your views to determine strategies that will maximize profits for his business.
(PROVIDE ANSWERS WITH FORMULA.THANK YOU)