Question 3 HD Toys is a small toy manufacturer in Singapore. For many years, the company has been manufacturing and selling all three of its products, puppet, BB guns and wooden sword domestically. Due to the successful growth of HD Toys over the last few years, its CEO Hermitt Rai has been contemplating to expand its business operations to neighboring countries. He has done some groundwork relating to establishing new sales offices or constructing a new factory in Malaysia due to the country's potential growth as a new market. For the Malaysia market, Hermitt Rai is pondering to sell the three products in a bundle. Each bundle contains one puppet, one BB gun, and one wooden sword. There is no discount pricing for the bundle. Ignore foreign exchange. A series of unfavourable economic events has occurred lately, adding uncertainty to the global economic conditions and the expected future sales. To hedge against a possible economic gloom, Hermitt Rai is considering to postpone or call off the construction of the new factory. HD Toys has collected the following monthly information relating to its operating costs and its three products: 2% * Advertising Royalty Lease of store space Lease of equipment Salary and wages Utilities Maintenance Factory insurance Domestic license fee * As a percentage of sales revenues. 8% $20,000 $55,000 $30,000 $4,000 $15,000 $3,000 $200 Question 3 (continued) Puppets 12,000 $6 Sales (units) Selling price (per unit) Direct material Direct labour BB Gun 8,000 $12 $5,000 $25,000 Wooden Sword 8,000 $8 $7,800 $9,000 $6,000 $15,000 Required (Each of the following is an independent question, always refer to the original data unless instructed otherwise.) Assume that HD Toys is opening sales offices in Malaysia and manufacturing its products using its existing facility in Singapore. There will be an additional shipping cost of $3 per unit of toy to transport the products from Singapore to Malaysia. To keep its sales offices in Malaysia, HD Toys has to pay a monthly business license fee of $30,000 to the Malaysian government and a customs duty of 5% of sales price. All operating costs remain the same. Calculate the variable cost per bundle sold in Malaysia. Workings should be detailed and clearly presented. (7 marks) (b) Refer to information in part (a). What should be the minimum sales bundles and sales dollars in Malaysia to avoid a net operating loss in Malaysia? Working should be detailed and clearly presented. (4 marks) (c) Refer to information in part (a). What should be the minimum sales bundles and sales dollar in Malaysia to avoid a net operating loss for HD Toys as a whole? Working should be detailed and clearly presented. (6 marks) (d) Instead of opening sales offices, assume that HD Toys is building the new factory in Malaysia for $300,000. The company intends to borrow money from a local bank with a non-compounding monthly interest rate of 1%. The principal and the interest will be paid together at the end of the fifth month. Hermitt Rai expects the monthly operating costs for the new factory in Malaysia to be the same as that in Singapore for the next five months. On average, how many bundles should HD Toys sell each month in Malaysia to pay off the loan in five months without affecting the operating profit in Singapore? Workings should be detailed and clearly presented. (5 marks) (e) Assume that the number of bundles sold in Malaysia is 15,000. Calculate the margin of safety in percentage for part (b) and part (d). (4 marks) Question 3 (continued) Refer to part (b), part (c), part (d) and part(e). Would you recommend HD Toys to establish sales offices or to build a new factory in Malaysia? Discuss three factors to support your recommendation. Use an example to illustrate each factor with clear and concise reasonings. (10 marks) (TOTAL: 36 marks) Question 3 HD Toys is a small toy manufacturer in Singapore. For many years, the company has been manufacturing and selling all three of its products, puppet, BB guns and wooden sword domestically. Due to the successful growth of HD Toys over the last few years, its CEO Hermitt Rai has been contemplating to expand its business operations to neighboring countries. He has done some groundwork relating to establishing new sales offices or constructing a new factory in Malaysia due to the country's potential growth as a new market. For the Malaysia market, Hermitt Rai is pondering to sell the three products in a bundle. Each bundle contains one puppet, one BB gun, and one wooden sword. There is no discount pricing for the bundle. Ignore foreign exchange. A series of unfavourable economic events has occurred lately, adding uncertainty to the global economic conditions and the expected future sales. To hedge against a possible economic gloom, Hermitt Rai is considering to postpone or call off the construction of the new factory. HD Toys has collected the following monthly information relating to its operating costs and its three products: 2% * Advertising Royalty Lease of store space Lease of equipment Salary and wages Utilities Maintenance Factory insurance Domestic license fee * As a percentage of sales revenues. 8% $20,000 $55,000 $30,000 $4,000 $15,000 $3,000 $200 Question 3 (continued) Puppets 12,000 $6 Sales (units) Selling price (per unit) Direct material Direct labour BB Gun 8,000 $12 $5,000 $25,000 Wooden Sword 8,000 $8 $7,800 $9,000 $6,000 $15,000 Required (Each of the following is an independent question, always refer to the original data unless instructed otherwise.) Assume that HD Toys is opening sales offices in Malaysia and manufacturing its products using its existing facility in Singapore. There will be an additional shipping cost of $3 per unit of toy to transport the products from Singapore to Malaysia. To keep its sales offices in Malaysia, HD Toys has to pay a monthly business license fee of $30,000 to the Malaysian government and a customs duty of 5% of sales price. All operating costs remain the same. Calculate the variable cost per bundle sold in Malaysia. Workings should be detailed and clearly presented. (7 marks) (b) Refer to information in part (a). What should be the minimum sales bundles and sales dollars in Malaysia to avoid a net operating loss in Malaysia? Working should be detailed and clearly presented. (4 marks) (c) Refer to information in part (a). What should be the minimum sales bundles and sales dollar in Malaysia to avoid a net operating loss for HD Toys as a whole? Working should be detailed and clearly presented. (6 marks) (d) Instead of opening sales offices, assume that HD Toys is building the new factory in Malaysia for $300,000. The company intends to borrow money from a local bank with a non-compounding monthly interest rate of 1%. The principal and the interest will be paid together at the end of the fifth month. Hermitt Rai expects the monthly operating costs for the new factory in Malaysia to be the same as that in Singapore for the next five months. On average, how many bundles should HD Toys sell each month in Malaysia to pay off the loan in five months without affecting the operating profit in Singapore? Workings should be detailed and clearly presented. (5 marks) (e) Assume that the number of bundles sold in Malaysia is 15,000. Calculate the margin of safety in percentage for part (b) and part (d). (4 marks) Question 3 (continued) Refer to part (b), part (c), part (d) and part(e). Would you recommend HD Toys to establish sales offices or to build a new factory in Malaysia? Discuss three factors to support your recommendation. Use an example to illustrate each factor with clear and concise reasonings. (10 marks) (TOTAL: 36 marks)