QUESTION 3

M Foods Company currently has 200 units of sales. Each unit is priced at RMIO and the variable cost per unit is RM5. M Foods rented equipment for their production. The rent for the equipment is fixed at RM500. The management is thinking of a new plan of production. The following plans were considered.

Plan 1: Reduce the use of 1 equipment and the new rent can be lowered to RM400. This plan however will increase the variable expense to RM6 per unit.

Plan 2: Increase automation and change the equipment with a higher rent of RM600. This plan can reduce the variable expense to RM4 per unit.

Based on the above information, determine the best plan using cost profit volume analysis. Your answer should show all calculations and an explanation on the riskiness of the plans.

(Total: 20 Marks)