Answer the questions from the information provided. As far as possible use the contribution margin model to present your answers.

2.1 Use the information provided below to calculate the expected Operating Profit/Loss of each proposal. (8 marks)

INFORMATION

The following budgeted information for the year ended 30 June 2023 was provided by Aster Ltd, a manufacturer of a single product:

Sales (R30 per unit) R4 800 000 Total variable costs (R2 880 000) Total fixed costs (R1 600 000) Operating profit R320 000

The sales manager suggested two proposals to improve the expected operating profit:

Proposal A involves launching an improved marketing campaign. This would involve an additional R360 000 outlay for advertising. Sales commission will increase by R2 per unit. Sales are expected to increase by 25% above the budgeted sales volume, with no change in the unit selling price.

Proposal B involves a 10% reduction in the unit selling price. Fixed selling overheads will reduce by R240 000. The sales volume is expected to increase by 16 000 units.