Question Al Mutiara Sakti Sdn. Bhd. is a shoemaker company, which was formed to manufacture the shoes, targeting mainly local Malaysian market. The sales are dominantly at peak during the festival and school holidays time and the shop is also open throughout the year in several shoe outlets. Lately, due to the economic downturn, there has been a steady decline in output as customers are becoming more careful in their spending habits because of the uncertainty about the future outcome. In the last trading year ended 31 December 2021, the financial statements showed that the company reported the lowest profit. The forecast figures for the year ending 2022 also foresee that there is no improvement in the business climate. Business activity is expected to be as gloomy as usual. The company considers that a profit of RM120,000 should be achieved to provide an adequate return on capital. The chief executive officer wants a review to be conducted of the present pricing and marketing strategies. The sales consultant has finalized his survey and analysis, and reports the proposals for further deliberation and recommendation, together with the forecasted profit and loss account for the year ending 31 December 2022. Mutiara Sakti Sdn. Bhd. Income statement for year ending 31 December 2021 RM Sales revenue (100,000 units at RM20) Manufacturing cost of goods sold Direct materials Direct Labor RM 2,000,000 200,000 750,000 Variable manufacturing overheads 150,000 Fixed manufacturing overheads 360,000 Administrative overheads (Fixed) 175,000 Selling and distribution overheads Sales commission (2.5% of sales) 50,000 Delivery cost (variable) 150,000 Fixed costs Operating Income 120,000 1,955,000 45,000 The information to be submitted to the chief executive officer includes the following three proposals: Proposal (i). To proceed on the basis of analysis of market research studies which indicate that the demand for the shoe is such that 10% reduction in selling prices would increase demand by 60%: or, Proposal (ii). There is an additional special order of 60,000 units. The company wants to review whether to proceed with the possibility of accepting a special order of shoes annually if the selling price is right. The company buying on special order would provide the transport, thus no delivery cost will be incurred. As this is direct negotiation, there will be no sales commission paid on these sales by Mutiara Sakti Sdn. Bhd. However, if an acceptable price can be negotiated, Mutiara Sakti Sdn. Bhd. would be expected to contribute RM75,000 per annum towards the cost of producing the special-order catalogue. It would be necessary for Mutiara Sakti Sdn. Bhd. to provide special additional packaging at a cost of RM1.50 per shoe. The marketing manager considers that in 2022, the sales from existing business would remain unchanged at 100,000 units, based on selling price of RM20 if the special- order contract is undertaken; or Required to: a. The calculation of break-even sales value based on the 2021 accounts (4 marks) b. A financial evaluation of proposal (i) and a calculation of the number of units, Mutiara Sakti Sdn. Bhd. would require selling at RM18.00 of shoes each to earn the target profit of RM120,000. c. (5 marks) A calculation of the minimum prices that would have to be quoted to the mail order company, first, to ensure that Mutiara Sakti Sdn. Bhd. would, at least, break even on the mail order contract, secondly, to ensure that the same overall profit is earned as proposal (i) and, thirdly, to ensure that the overall target profit is earned. (10 marks) d. Critically explain the significance of cost volume profit analysis to managers of the firm. (6 marks) (Total = 25 Marks)