Power Drill Sdn Bhd specialised in machines production. The Senior Production Manager, Gordon plans and proposes to manufacture and sell hydraulic pump machine in January $2024.$ The estimated sales volume of hydraulic pump machine for the financial year ended $31$ December $2024$ is $750$ units. The Marketing Manager, Jeffrey reported that the market price of hydraulic pump machine is RM$9,200$ per unit, hence the company plans to sell the hydraulic pump machine at market price. Part A and Part B are the components used in making hydraulic pump machine. The Production Manager developed a prototype with the cost details as below:

Part A Component

One unit of Part A is required for production of a unit of hydraulic pump machine. $96$ kg of material H is required to produce a unit of part A$.$ The market price of material H is RM$20$ per kg$.$ The production supervisor, Tom suggested an alternative to further process material G in order to replace material H$.$ The company possesses $90,000$ kg at book value RM$10$ per kg of material G in the warehouse. Material G is no more used in the company$$s production and it can be scrapped at RM$3$ per kg$.$ The further process cost to convert input material G to output material H is RM$15$ per kg$.$ The normal loss in the conversion process is $20\%$ of input.

The company needs to hire skilled experts to make Part A component. Each unit of part A requires six hours of a skilled expert. The wage rate of a skilled expert is RM$150$ per hour. The other variable production overheads for production of a unit of part A is RM$250.$

The company must rent equipment X for production of part A$.$ The monthly rental of an equipment X is RM$10,000.$ Each equipment maximum monthly production capacity is $32$ units of hydraulic pump machines.

Part B Component

One unit of Part B is required for production of a unit of hydraulic pump machine. Two units of component D are required for each unit of Part B component. The cost of each unit of component D is RM$500.$

Production workers are hired at RM$200$ per hour and each unit of Part B requires $12$ production hours.

The other additional costs to be incurred for production of hydraulic pump machine in the financial year ended $31$ December $2024$ are given as below:

RM

Assembly costs $210,000$

Other materials cost $550,000$

$5\%$ of the annual production number of hydraulic pump machine will be subject to warranty claims. The budgeted average cost of warranty claim is RM$1,100$ per hydraulic pump machine.

Required:

$($a$)$ Based on the information in the above, determine the target cost gap of hydraulic pump machine. The expected profit margin is $20\%.$ Show all workings. $(15\mathrm{.}5$ marks$)$

$($b$)$ The Production Manager is requested to review and recommend a revised proposal of the hydraulic pump machine production in order to fulfill the target cost requirement. Based on the production team$$s feedback, the company should consider in purchasing Part A component and$/$or Part B component from supplier, Trust Pro Sdn Bhd$.$ The cost to purchase Part A component and Part B component are RM$4,000$ per unit and RM$2,600$ per unit respectively.

$($i$)$ Discuss the appropriate targeting costing process for the hydraulic pump machine.

$($ii$)$ Advise the company management based on the given information and determine the revised unit cost of hydraulic pump machine. $(4\mathrm{.}5$ marks$)$

$($c$)$ The company will keep zero stock of hydraulic pump machine. All sales and production costs $($except for the rental of equipment X$)$ are variable in nature. The estimated $2024$ Quarterly production and sales volume of hydraulic pump machine are listed as below:

Quarter $1$ Quarter $2$ Quarter $3$ Quarter $4$

Sales$/$production $200$ units $200$ units $175$ units $175$ units

Additional information

$($i$)$ In each quarter, $60\%$ of the total sales is cash sales and the balance is credit sales. All credit sales are receivable during the immediate subsequent quarter.

$($ii$)$ All further processing costs on material G are paid during the production period.

$($iii$)80\%$ of skilled experts$$ wages are paid during the production quarter and the balance of the wages are settled in the immediate subsequent quarter.

$($iv$)$ Half of the quarterly other variable production overheads is paid during the production quarter and the balance is settled in the immediate subsequent quarter.

$($v$)$ Monthly equipment X rental, assembly cost, other materials and warranty claims are settled during the immediate subsequent month.

$($vi$)$ Purchases of part B component in cash basis.

Prepare quarterly cash flow budget from $2024$ quarter $1$ to $2025$ quarter $1.$ Show all workings.

$(17$ marks$)$

$($d$)$ Discuss the challenges to rely on supplier to produce Part B component. $(10$ marks$)$

Note:

All figures to be rounded$-$up to the nearest dollar $($no decimal point$).$

All workings must be shown clearly, and in addition to your written submission, a soft copy is to be handed in an Excarks$)$