1. Adam and his friend, Akmal, are both talented painters. Last year, they started painting postcards which they gave to their friends as a gift. After that, they began selling those postcards at a craft fair and sold them for fun. At the last fair, a buyer who really liked the postcards and offered them the contract to paint 500 postcards of a specific design for a price of RM2,000. With the increase in demand, Adam and Akmal decided to open a business and named it as 4A Craft. Each postcard priced at RM4.00. Variable operating costs amounted to RM1.50 per postcard. To produce the postcards for the contract, they have to buy a specific machine for cutting the postcard, which cost the amount of RM700. (i) Solve for 4A Craft’s operating breakeven point value.
1. Adam and his friend, Akmal, are both talented painters. Last year, they started painting
postcards which they gave to their friends as a gift. After that, they began selling those
postcards at a craft fair and sold them for fun. At the last fair, a buyer who really liked
the postcards and offered them the contract to paint 500 postcards of a specific design
for a price of RM2,000. With the increase in demand, Adam and Akmal decided to
open a business and named it as 4A Craft. Each postcard priced at RM4.00. Variable
operating costs amounted to RM1.50 per postcard. To produce the postcards for the
contract, they have to buy a specific machine for cutting the postcard, which cost the
amount of RM700.
(i) Solve for 4A Craft’s operating breakeven point value.
(ii) Solve for of 4A Craft’s EBIT value of that contract.
(iii) If Adam decides to renegotiate the contract at the price of RM5.00 per
postcard, solve for the new value of EBIT.
(iv) If the buyer refuses to pay more than RM4.00 per postcard, but willing to
negotiate on the quantity, identify the quantity of postcards through proper
calculation that will result in the EBIT value of RM1,200.
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