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I need a answer to this Managerial accounting question QUESTION 3 (20 MARKS) Sixam Ltd is considering a package of proposals for design changes in

I need a answer to this Managerial accounting question

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QUESTION 3 (20 MARKS) Sixam Ltd is considering a package of proposals for design changes in one of a range of decorative cushions. The proposals are as follows: a) b) 0) Eliminate some of the decorative stitching from the cushions. Use cotton tassels instead of silk tassels on the cushions (four per cushion). Change the filling material used. It is proposed that scrap fabric left over from the cushion cover be used instead of the synthetic material which is currently used. The design change proposals have been considered by the management team and the following information has been gathered: Cotton tassels will cost R300 per hundred whereas the existing silk tassels cost R500 per hundred. The cotton tassels will fray more easily when being attached to the cushions leading to a rejection rate of 10% of the quantity of tassels issued from stores as compared to 5% of issues of silk tassels at present. The synthetic filling material costs R900 per ton. One ton of filling is sufficient for 3 000 cushions. Scrap fabric to be used as filling material will need to be cut into smaller pieces before use and this will cost R150 per cushion. There is sufficient scrap fabric for the purpose. The elimination of the decorative stitching is expected to reduce the appeal of the product, with an estimated fall in sales by 15% from the current level. It is not felt that the change in tassels or filling material will adversely affect the sales volume. The elimination of the stitching will reduce production costs by R230 per cushion. The current sales level of the decorative cushions is 30 000 units per annum. Apportioned fixed costs per annum are R900 000. The net profit per cushion at the current sales level is R15. REQUIRED: a) C) Using the information given in the question, prepare an analysis which shows the estimated effect on annual profit should all three proposals be implemented. (The proposals for cotton tassels and the use of scrap fabric should be evaluated after the stitching elimination proposal has been evaluated). (9) Calculate the percentage reduction in sales resulting from the stitching elimination, at which the implementation of all three design change proposals would result in the same total profit from the cushions as that earned before the implementation of the changes in design. (6) Discuss what additional information should be obtained before a final decision is taken with regard to the implementation of the proposals

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