Monsoon Company Ltd that specialises in the manufacturing of heavy irrigation equipment has been experiencing a decline in profits recently. The board of directors have challenged management to come up with some cost cutting measures that would require bold decision-making on management's part in order to improve the bottom line.

The income statement of the company as at 30 September 2018 reflects the following:

Sales (5,000 units R15) R75 000

Less variable expenses: 37 500

Cost of goods sold:

Direct materials R15 000

Direct labour 10 000

Variable factory overhead 10 000

Selling and administrative 2 500

Contribution margin R37 500

Less fixed expenses: 25 000

Factory overhead R10 000

Selling and administrative 15 000

Net income (loss) R1 50