Question 5 Gardena Ltd.is a medium-sized company engaged in the production and sale of garden furniture. During the past financial year demand for all three of their products, Benches, Tables and Loungers increased significantly. The company is currently preparing its budget for the forthcoming period and has just received information from their Malaysian material supplier, that the amount of wood available next year will be 25% less than was available in the current year. The following information in relation to all three products is provided: Table Bench Lounger $200 $250 $180 Selling Price per unit Costs per unit Direct material - Wood Direct labour Variable overheads Fixed overheads $100 $40 $10 $10 $80 $60 $20 $10 $60 $40 $20 $10 Notes: 1. The amount of material that was available in the current year was 80,000 square meters and the price per square meter was $10.The price of the wood will not increase in the forthcoming year. 2. Fixed overheads are absorbed into products on a unit basis. Total fixed overheads are estimated at $110,000 for the forthcoming year. 3. Demand for each of the products is forecast as follows for the forthcoming year: Bench 2,000 units Table 5,000 units Lounger 4,000 units Required: (a) Determine the optimum production plan for Gardena Ltd. and state the profit that it would yield. (15 marks) (b) Critically appraise the following statement: fixed costs are never relevant for decision making scenarios. (10 marks) [25 marks]