Question $6$

A$).$ Alinco Company Ltd is a private company manufacturing leather materials purchased for sporting activities. The current is direct to retailers, but there has recently been a serious decline in output because of increased forcign compection. In the last year of trading $(2021),$ the accounting report showed that the company produced the lowest profit in $10$ years. The forccast for $2022$ show that the company's present deterioration in profit is likely to continuc. The company considers that a profit of GHS $80,000$ should be accrucd to provide an adequate recurn on capital. The Managing Director has reviewed the present pricing and markecing policies. The marketing managce has completed this review and passed the proposal to you for cevaluation and recommendation, togecher with the profit and loss account for the yar ending December $31,2021.$

ALINCO LTD Profit and Loss Account for December $31,2021$

Direct material

Direct Labour

Variable Factory Overheads

Fixed Factory Overhead

Administration Overhead

Selling and Distribution overhead

Commission on sales $(2\%$ of sales$)$

Delivery cost $($variable per unit

Fixed Cost

Profit

The information to be submitted to the managing director includes the following three proposals

To proceed based on an analysis of the market survey, which states that the demand for leathe is such that a $10\%$ reduction in selling price would increase demand by $40\%$

The market survey has shown a company has had an email order and the possibility of purchasing $50,000$ units per year if the selling price is right. The email order company would transport the leathers from Alinco to its warchouse. Alinco would be expected to contribute GHS $60,000$ per annum towards the cost of producing the email order. Alinco would also bc expected to provide special packaging at the Cost of GHS $0\mathrm{.}50$ per leather. The marketing director considers that in $2022$ the sales from the existing busincss would remain unchanged at $100,000$ units based on the selling price of GHS $10$ if the email order contract is undertaken.

To procecd based on a view by the markecing direccor that a $10\%$ price reduction togecher with a national advertising campaign costing GHS $30,000$ may increase sales to the maximum capacity of $160,000$ leathers

Required

$($a$)$ The calculation of breakeven sales value is based on the $2021$ account

$($b$)$ A financial evaluation of proposal $1$ and a calculation of the number of units Alinco ltd would require to scll at GHS $9$ cach to carn the target profit of $GHS80,000$

$($c$)$ The calculation of the minimum prices that would have to be quoted to the email order company, first to ensure that Alinco ltd would at least break even in the email order contract, sccondly to ensure that the same overall profit is carned as proposal $1$ and thirdly to ensure the overall target profit is made

$($d$)$ A financial evaluation of proposal $3.$

$6$B$).$ Explain the concept of budget and budgetary control, stating five $(5)$ advantages firms enjoy form budgcting

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