K-M Pomaah Limited (the Company produces and sells a study desk called the The Student Aid. The Company has been producing desks for the Ghanaian market for over 30 years and began exporting a limited number of desks to the West African Sub Region about 10 years ago. The Company is a subsidiary of a Chinese multinational that has not been satisfied with the losses that the Company has incurred over the last few years. The parent company in China is threatening to close the Ghanaian factory unless the Company can produce a profit in the next year of operation. The factory currently has a capacity to produce 50,000 desks per year but all realistic estimates of its market size, including the exports to the sub region, suggest that it will not sell more than 30,000 desks per year in any of the next 5 years. The managing director has hired you to find ways to improve profitability. You analyse the cost structure of the Company and find the following: Production costs: Variable - GHS 1,150 per desk Fixed - GHS 2,496,000, based on current production. Selling and administrative expenses: Variable - GHS 165 per desk Fixed - GHS 2,800,000 based on current production. 1 K-M Pomaah Limited (the Company produces and sells a study desk called the The Student Aid. The Company has been producing desks for the Ghanaian market for over 30 years and began exporting a limited number of desks to the West African Sub Region about 10 years ago. The Company is a subsidiary of a Chinese multinational that has not been satisfied with the losses that the Company has incurred over the last few years. The parent company in China is threatening to close the Ghanaian factory unless the Company can produce a profit in the next year of operation. The factory currently has a capacity to produce 50,000 desks per year but all realistic estimates of its market size, including the exports to the sub region, suggest that it will not sell more than 30,000 desks per year in any of the next 5 years. The managing director has hired you to find ways to improve profitability. You analyse the cost structure of the Company and find the following: Production costs: Variable - GHS 1,150 per desk Fixed - GHS 2,496,000, based on current production. Selling and administrative expenses: Variable - GHS 165 per desk Fixed - GHS 2,800,000 based on current production. 1