6. RD Tower Ltd is a company which makes a range of kitchenware products. One of these products, the Premier frying pan, has been subject to intensive competition from a rival company during the last year. The company is reviewing the product and planning for the year ended 30th June 2021. The financial accountant has provided you with the following information pertaining to this product for the six months to April 2020: Month Activity level Cost incurred (units) November 2,925 56,475 December 2,625 54,375 January 3,000 57,000 February 3,150 58,050 March 3,675 61,725 2,700 54,900 April Required: a) The current selling price of the frying pan is 25 per unit. Assuming that during the year ended 31st June 2021, the monthly fixed costs and the variable costs remain the same as the six months to April 2020, how many units would RD Tower Ltd need to make and sell to break even for the year ending June 2021? (5 marks) b) Assuming that the total units made and sold for the year ended June 2021 are at the same monthly level as the six months to April 2020, calculate the profit for the year ending June 2021. In addition, calculate the margin of safety percentage for this product and calculate how many units of this product would need to be sold in order for the company to make a profit of 300,000. (3 marks) c) A number of untested, possible proposals have been put forward to try to increase the profitability of the product for the coming year to 30th June 2021. Proposal 1: Reduce the price by 5% which is hoped would win customers away from the competition and it is estimated that unit sales demand would rise by 8% per year. Proposal 2: Reduce the price by 2.5%, and increase the advertising budget for this product by 40,000 per year. It is estimated that unit sales demand would rise by 12% per year as a consequence of these actions. Proposal 3: Spend an extra 2 per unit on the product to improve the quality of the product, therefore changing its position in the market. The product could then be sold for 28. Relaunch the product spending 75,000 on advertising per year. It is estimated that unit sales demand per year would rise by 20% as a consequence of these actions. Calculate the estimated profit for each proposal and, based on profitability alone, recommend, with reasons, one of the proposals. (6 marks) d) With regard to the proposals in part c) discuss the other business factors and information which need to be investigated before a decision can be adopted. (6 marks) 6. RD Tower Ltd is a company which makes a range of kitchenware products. One of these products, the Premier frying pan, has been subject to intensive competition from a rival company during the last year. The company is reviewing the product and planning for the year ended 30th June 2021. The financial accountant has provided you with the following information pertaining to this product for the six months to April 2020: Month Activity level Cost incurred (units) November 2,925 56,475 December 2,625 54,375 January 3,000 57,000 February 3,150 58,050 March 3,675 61,725 2,700 54,900 April Required: a) The current selling price of the frying pan is 25 per unit. Assuming that during the year ended 31st June 2021, the monthly fixed costs and the variable costs remain the same as the six months to April 2020, how many units would RD Tower Ltd need to make and sell to break even for the year ending June 2021? (5 marks) b) Assuming that the total units made and sold for the year ended June 2021 are at the same monthly level as the six months to April 2020, calculate the profit for the year ending June 2021. In addition, calculate the margin of safety percentage for this product and calculate how many units of this product would need to be sold in order for the company to make a profit of 300,000. (3 marks) c) A number of untested, possible proposals have been put forward to try to increase the profitability of the product for the coming year to 30th June 2021. Proposal 1: Reduce the price by 5% which is hoped would win customers away from the competition and it is estimated that unit sales demand would rise by 8% per year. Proposal 2: Reduce the price by 2.5%, and increase the advertising budget for this product by 40,000 per year. It is estimated that unit sales demand would rise by 12% per year as a consequence of these actions. Proposal 3: Spend an extra 2 per unit on the product to improve the quality of the product, therefore changing its position in the market. The product could then be sold for 28. Relaunch the product spending 75,000 on advertising per year. It is estimated that unit sales demand per year would rise by 20% as a consequence of these actions. Calculate the estimated profit for each proposal and, based on profitability alone, recommend, with reasons, one of the proposals. (6 marks) d) With regard to the proposals in part c) discuss the other business factors and information which need to be investigated before a decision can be adopted. (6 marks)