Samudera Sdn Bhd produces toys and other items for use in beach and resort areas. A small, inflatable toy is presently popular among children and the company is anxious to produce and sell the product. Enough capacity exists in the company's plant to produce 16,000 units of the toy each month. Following are the information related to the new toy:

Selling price = RM3.00 per unit

Variable expenses = RM1.25per unit

Fixed expenses = RM35,000 per month

The company's Marketing Department predicts that demand for the new toy will exceed the 16,000 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expenses of RM1,800 per month. Variable expenses in the rented facility would total RM1.40 per unit, due to less efficient operations than in the main plant.

Required:

(a)Compute the monthly break-even point for the new toy in unit sales and in Ringgit Malaysia

(10 marks)

(b)How many units must be sold each month to make a monthly profit of RM24,000?

(3 marks)

(c)If the sales manager receives a commission of 10 cents for each unit sold in excess of the break-even point, what is the new contribution margin per unit? Then, how many units must be sold each month to earn a return of 25% on the monthly fixed expenses?

(5 marks)

(d)Explain the term operating leverage. What does higher value of operating leverage mean? Explain.

(5 marks)

(e)What is meant by sales mix? What assumption is usually made concerning sales mix in cost-volume-profit (CVP) analysis?

(2 marks)