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 (60,000 units)		RM4,800,000
Direct material cost	RM1,680,000
Direct Labour cost	RM 960,000
Production Overhead	RM1,040,000
Administration overhead	RM 720,000
Selling Overhead	RM 480,000	(RM4,880,000)
Loss		(RM 80,000)

Additional information

1. The production overhead includes variable production overhead at RM4.00 per unit. Administration overhead and selling overhead are fully fixed.

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%.

(4 marks)

d.

Critically evaluate the importance of cost-volume profit analysis in managerial decision making. (20 marks)

(Total: 40 marks)