The directors of Red Pink Sdn Bhd, a business which makes only one product, have been reviewing the following summarized profit and loss account for the quarter just ended.

Sales (50,000 units) RM2,000,000 Direct material cost RM350,000 Direct Labour cost RM200,000 Variable Production Overhead RM200,000 Fixed Production Overhead RM200,000 Administration overhead RM180,000 Selling Overhead RM220,000 (RM1,350,000) Profit RM 650,000 Additional information

(1) Admistration overhead is fixed. While selling overhead includes variable selling overhead which is 10% of sales Required:

a. Contribution per unit and contribution sales ratio c/s ratio. (2 marks)

b. The break-even point in units and value. (2marks)

c. The following alternative proposals have been put forward to improve profits in the current quarter. Determine the target profit expected and break-even point (to the nearest unit of product) for each of the following alternative proposals separately:

(i) Reduce selling price by 10% , expecting sales volume to increase by 40% (4 marks)

(ii) Reduce fixed cost by 5% (4 marks)

(iii) Increase wage rate by 25%, expecting production and sales volume to increase by 20% (4 marks)

(iv) Introduce cost reduction programme to reduce prime cost by RM4 per unit. Spend RM400,000 on advertising and expect sales volume to increase by 10%. 3 (4 marks)

d. Critically evaluate the importance of cost-volume profit analysis in managerial decision making.