Question (b)

The company decided to make some changes to its operations based on the actual results andthe variance analysis. The plan is to maintain the selling price of the product at RM100 per unitandthenumberofunitssoldat2,200units.Rawmaterialsusagewillremainat2.5kgperunitandthe costatRM6perkg.

Thecompanyintendstorenta newmachineandthe effectisas follows:-

i. Machine maintenance cost will be reduced to RM500 per machine hours and thenewmachine will be used for30machinehours.

ii. As the new machine is more efficient, less labour will be required. The number ofworkers will also be reduced. The direct labour hours will be reduced to 2 hoursper unitandthecompany will maintainthelabourrateatRM9.5perhour.

iii. The general variable overheads will be based on the new direct labour hours andthepredeterminedoverheadrateisRM8.FixedoverheadwillincreasetoRM80,000.

Question (c)

Prepare the net operating income statement based on the intended plan of the company.Evaluatethefeasibilityoftheplanandprovide commentsandsuggestions.