seng chua believes that an additional rm500,000 of machinery (to be depreciated at 20% annually) will increase present capacity (210,000 units) by 5%. if all units produced can be sold at the present price of rm15 per unit and the wage increase goes into effect, how would the estimated operating income before capacity is increased compare with the estimated operating income after the capacity is increased? prepare schedules of estimated operating income at full capacity before and after the expansion

Established in 1999, Seng Plastic Product Sdn. Bhd. (SENGPP) is now one of the leading manufacturers for plastic moulded products in Malaysia. SENGPP produces a moulded plastic casing, SPX605, and currently sells 200,000 units annually to producers of many mobile phones on the market. Seng Chua, president of the company, anticipates a 20 percent increase in the cost per unit of direct labour on January 1 of next year. He expects all other costs and expenses to remain unchanged. Seng Chua has asked you to assist him in developing the information he needs to formulate a reasonable product strategy for next year. You are satisfied that volume is the primary factor affecting costs and expenses and have separated the semivariable costs into their fixed and variable segments. Beginning and ending inventories remain at a level of 3,000 units. Current plant capacity is 210,000 units. The following are the current-year data assembled for your analysis: RM RM 15 Sales price per unit Nariable costs per unit 3 Direct materials 1 Direct labour 2 6 9 Manufacturing overhead and selling and administrative expenses Contribution margin per unit (60%) RM1,000,000 Fixed costs ants. over the 20 percent increase in direct