QUESTION 1 4 6 Fit-Life Equipment Sdn Bhd is a manufacturer of exercise machines for home use and fitness centers. One of the most popular fitness machine is it's treadmill machine model PRO 9000. Details of the selling price and related cost of PRO 9000 is as follows: Selling price per unit RM 4,800 Variable cost per unit RM 2,540 Fixed cost per unit RM 1,140 Average production per production run 5,000 units No. of production in a yeli Maximum production ran a year (plant capacity) Set up cost per production run RM 385,000 Recently, a competitor selling the same type of exercise equipment is planning to introduce a similar type of treadmill that will sell for RM 3,650 per unit. Fit-Life Equipment Sdn Bhd is concerned about the competitor's pricing and is wondering if Fit-Life can lower it's selling price to RM 3,650. The marketing manager is confident that the lower price will increase sales by 25% per year. The Production Manager estimates that production cost will increase by 25% with same level of fixed cost. Fit-Life Equipment Sdn Bhd currently sells all the model PRO 9000 that it produces Required: a) What is the annual operating income from model PRO 9000 at the current selling price of RM 4,800 per unit? (5 marks) b) What is the annual operating income from PRO 9000 if the price is reduced to RM 3,650 and sales in units increases by 25%2 (5 marks) c) What is the target cost per unit for the new price if target operating income is 30% of sales? (4 marks) d) Based on your computation in (b), what is the unit production cost for one unit of PRO 90002 (3 marks) e) What is the difference - "cost gap" between the target cost per unit in () and the unit production cost for one unit of PRO 9000 computed in (d)? (2 marks) 1) Explain what should Fit-Life Equipment Sdn Bhd undertake to close the cost gap and the type of cost that needs to be eliminated to achieve the target cost per unit? (6 marks) [Total 25 marks]