Question 4

Kia Soo Pte Ltd (KS) produces small tablets computers. It just hired its third product manager in three years. All the previous managers had quit because they could not get sales to go above the break-even point. This is despite the fact that sales had increased 5% in each of the past three years. The company has been operating at about 60% of plant capacity. The small tablets industry is growing, so increasing sales is not unrealistic.

Mr Easy took the job as product manager with a very attractive salary package. After interviewing for the position, he had proposed a salary and bonus package that would give him a very small salary but a large bonus if he took KSs absorption costing operating income above the break-even point during his very first year at KS.

Required:

Explain what Mr Easy could have in mind for increasing the company's operating income above break-even point so quickly. Explain if you think KS would be better or worse off if Mr Easys plan succeeded.

(14 marks)