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QUESTION 5 (25 MARKS] White Ltd manufactures and sells three products with the following selling prices and variable costs: Product Product Product A B C (Rs/unit) (Rs/unit) (Rs/unit) 3 2.45 4 Selling price Variable cost 1.2 1.67 2.6 The company is considering expenditure on advertising and promotion of Product A. It is hoped that such expenditure, together with a reduction in the selling price of the product, would increase sales. Existing annual sales volume of the three products is: Product A Product B 460,000 units 1,000,000 units 380,000 units Product C If Rs60,000 per annum was to be invested in advertising and sales promotion, thus increasing the fixed cost, sales of Product A at reduced selling prices would be expected to be: 590 000 units at Rs2.75 per unit Or 650 000 units at Rs2.55 per unit Annual fixed costs are currently Rs 1,710,000 per annum. REQUIRED (a) Calculate the current break-even sales revenue of the business. [10 marks] (b) Advise the management of White Ltd as to whether the expenditure on advertising and promotion, together with selling price reduction, should be introduced on Product A. [10 marks] (c) Explain the following term: (i) Contribution margin [3 marks] (ii) Margin of Safety [2 marks]