he chief executive officer was confused by the chief financial officers explanation and replied: This doesnt make sense. I ask you to explain why operating profit dropped when sales went up and you talk about production! So what if we had to cut back production? We still were able to increase sales by $25\%.$ If sales go up$,$ the operating profit should go up$.$ If your income statements cant show a simple thing like that, then it is time for some changes in your department!Budgeted production and sales for the financial year ending $31$ December $2023,$ along with actual production and sales for the first two quarters, are given below:Quarter $($pairs of sneakers$)$Quarter $1$Quarter $2$Quarter $3$Quarter $41200120015001500$The company had $400$ pairs of sneakers in inventoryout $($FIFO$)$ method of inventory valuation. The unit product cost of each of the $400$ pairs of sneakers amounted to R$200.$ The chief operations officer of the company was as confused in the meeting and passed the following comment: We should just adopt the use of activity$-$based costing instead of the traditional costing system in order to ensure that Rocco $($Pty$)$ Ltd achieves a higher total profit for the year.Whilst everyone was so focused on these issues, the treasurer of the company showed signs of irritation and noted the following: You are all focused on the history of profits we did not make money; that is the bottom line. How is arguing about profits going to assist us$?$ I am more concerned about whether we will have the cash to run our operation in the next two quarters. I anticipate that our cash balance in the bank account will be sitting at an overdraft of R$18000$ as at $30$ June $2023.$ Additional information on the timing of the cash flow for the business is presented in the table below.Budgeted sales Actual sales Budgeted production Actual production$1500150015001500150018001500$Rent expenseDirect labour OtherRent is payable twice a year in advance: on $1$ January and $1$ July each year.Labourers are paid at the end of each second week. All other costs are paid monthly as they are incurred$\mathrm{.}900$ on $31$ December $2022$ and uses the first in firstAccountTiming of the cash flowsSales$75\%$ of the sales are on credit. The company normally collects $50\%$ of a quarters credit sales before the same quarter ends, collects $30\%$ in the quarter following the quarter of the sale and collects $20\%$ two quarters after the sale.Direct materialRocco $($Pty$)$ Ltd uses the just$-$in$-$time system and buys raw material when needed for production. There is no material that is held in stock. The suppliers are paid in the month of purchase.