QUESTION

Horizon Berhad manufactures exclusive alarm clocks. After a number 0 successful years they are considering expanding their production capability by a fac f 40% to take advantage of the rising demand. The accountant has produced the following information: 1. The Current sales per year are 5,000 units at RM170.00 per unit 2. The Variable costs are RM100.00 per unit 3. The Fixed costs are RM210,000 per year 4. If production is increased it is anticipated that: i. Fixed costs will increase by RM82,500. ii. Variable costs are expected to fall by RM5.00 per unit due to the bulk purchasing of raw materials. iii. The selling price is expected to fall by RM10.00 per unit. Required: a. For both the present and proposed situations, calculate: i. The breakeven point in units and in sales revenue. (4 marks) ii. The annual prot. (4 marks) iii. The margin of safety in units and in RM (2 marks) b. 0n the basis of your answer to part (a), discuss with reasons what would be your advice to Horizon Berhad. (6 marks) c. If a sales commission of RM2.00 per unit for each alarm clock was to be introduced, how many additional units of alarm clocks need to be sold in order to earn the same net income as per the proposed situation? (4 marks)