1 [Temporary Shutdown Decisions] As a General Manager of Metro Public Transport Limited, you have been asked to comment on a proposal that East Legon route should be abandoned. The following are estimates of profit/(loss) for the next quarter: Kosoa route Nima route GH000 GH000 East Legon route GH000 Revenue from passengers 440 592 232 Direct costs (300) (400) (160) Specific fixed costs (72) (96) (48) Common fixed costs (48) (64) (40) Profit/(loss) 20 32 (16) The company is concerned about the poor profit performance of East Legon route and is considering abandoning it as transport fares cannot be raised because fares are determined in line with fuel pricing regulation regime. Required (a) Advice management on whether the East Legon route should be abandoned. [5 Marks] (b) Feasibility studies revealed that switching resources from East Legon route to Amansaman route would generate the following revenue and cost estimates: revenue from passengers' GH380,000, direct cost GH200,000, specific fixed costs of GH40,000, and switching cost GH50,000. Advice management showing all the necessary calculations. [5 Marks] (c) Discuss five (5) qualitative factors that are likely to affect your decisions in requirement (a) and (b) above [5 Marks] [Total of 15 Marks] Question 2 [Minimum Pricing Decisions] BABE Limited produces soft wears and has budgeted for the production of 200,000 units during the next year. The cost estimates for the quarter are as follows: Direct labour Direct materials Variable overheads Packaging Fixed overheads GH 1,200,000 400,000 400,000 200,000 800,000 3,000,000 The company has received orders for the supply of 160,000 units during the coming year at GH20 per unit. It is not likely that the remaining 40,000 will be sold at the exiting price, but a customer is prepared to purchase them at a selling price of GH14 per unit. Required Advise management whether the request should be accepted. (Show all workings) [15 Marks]