Murumba $($Pty$)$ Ltd $($Murumba$)$ manufactures and sells car brake pads. Murumba

produced its $2024$ financial year budget based on the assumption that the entity would

be able to sell the brake pads for R$6000$ each. The variable cost of each brake pad

was projected at R$3000,$ and the annual fixed costs were budgeted at R$1300000.$

Murumba$$s fixed costs accrue evenly during the financial year.

The entity requires a profit of R$3000000$ for the financial year in order to meet its

target return on capital: R$1000000$ in the first six months and R$2000000$ in the

remaining six months.

The entity normally expects its sales to rise during the second quarter of the financial

year. However, the June $2024$ management accounts show that sales volumes were

not in line with expectations. During the first six months of the $2024$ financial year,

variable costs were as projected, but at the budgeted selling price of R$6000,$ only $250$

units had been sold. Additional information

To ensure that the entity still meets its required profit of R$2000000$ for the remaining

six months, the following mutually exclusive alternative plans of action were

developed:Plan A Reduce the selling price by $10\%.$ The sales director believes that this will generate

sales of $2700$ units during the remaining six months of the financial year. Total fixed

costs and variable costs per unit will not be affected and will remain as budgeted. Plan B

Reduce variable costs per unit by $12,5\%$ through the use of less expensive raw materials. Fixed costs will not be affected. This will allow the selling price to be reduced by $7,5\%.$ Based on the reduced selling price and variable costs, the sales director believes that sales of $2200$ units will be achieved during the remaining six months of

the financial year. Plan C

Reduce fixed costs by R$130000$ per annum. This will allow the selling price to be

reduced by $5\%.$ Variable costs per unit will not be affected. Based on the reduced

selling price, the sales director believes that sales of $2000$ units will be achieved

during the remaining six months of the financial year. breifly comment on the level of risk perceived in each of the three alternative plans of action. conclude which plans has the lowest level of risk. $(5\mathrm{.}5$ marks$)$