Question 4 (25 marks) Namaqua-PumpsLtd is a pump-manufacturing company based in Rundu, Kavango West. Namaqua-Pumps has been in the business for a few years now,and it supplies pumpsto the local market. The financial manager recently proposed that Namaqua-Pumpsshould also export its product to other regions in order to enlarge their footprint. Although Namaqua-Pumpshas experienced significant growth in revenue in previous years, however, the growthhasrecently slowed down. This is mainly due to the harsh economic environmentwithin Namibia. There is fear among the employees that they may be retrenched due to the harsh economy. However, the company managements public announcementonits website reads as follows: We as NamaquaPumpswill do our very best to ensure the well-being of not only our employees, but also the community around us. We are aware of the current situation and we are trying our utmost best to make sure that there would not be any retrenchment of our employees. We are also experiencing difficulty with limited resourcesat our disposal, but we will do everything possible to ensure that employees jobs are safe and that our community projects continue. Any changesto this will be discussed with the respective unions. Namaquas Pump system As part of his preparations for the budget for the month of May 2018, the previous accountant of the Namaqua-Pumps completed a breakeven analysis and concluded that the breakeven production and sales volumes amounted to 20 500 pumps. The fact that the company only sold 20 000 pumpsbutis reporting a preliminary profit of NS130 000 for the month of April 2018, has raised a concern aboutthe integrity of the information generated by the divisions accounting department. Management of Namaqua-Pumps had some queries regarding the calculations performedin the division. The following have been established: Namaqua-PUMP Ltd ACTUAL STATEMENTOF PROFIT OR LOSS FOR THE MONTH ENDING 30 APRIL 2018 Notes NS Sales 1 2 000 000 Less: Cost of sales (1 700 000) Opening stock Inventory at beginning of month 0 Production costs 2 2 125 000 Inventory at end of the month Finished goods (425 000) Production overheads over/under recovery 90 000 Grossprofit 390 000 Selling costs 4 (180 000) Administration costs 5 (80 000) Net income before tax for the month 130 000 Notes: 1) Sales and production had been budgeted for April at 22 000 pumps. The budgeted fixed manufacturing overheads was NS660 000. The budgeted selling price for April was NS100 per pump. 2) Actual production volumes exceed actual sales. 3) The actual unit costs and selling prices were all equal to budgeted amounts. 4) 25% ofselling costs are variable. 5) Administration costs are fixed. 6) Production overheads are absorbed based on pumpsproduced. 7) Statementofprofit or loss was prepared according to absorption costing. Requirement: (25) a) Briefly discuss the reasons why the Namaqua-PumpsLtd reported a profit for the month (4) of April 2018 while selling less pumps than the anticipated breakeven point. Namaqua-Pump. b) Calculate the actual units of pump systems produced for the month of April 2018 for (3) c) Explain whether there is an under-absorption or an over-absorption of overheads based (3) on the statementof profit or loss for April 2018 for Namaqua-Pumps. increase to 26 000units. d) Assume thatthe actual units of production was 25 000 for the month of April 2018. (7)