QUESTION ONE

THE SUMMARIZED PROFIT AND LOSS STATEMENT FOR EXILDA PLC FOR THE

LAST YEAR IS AS FOLLOWS:

At a recent board meeting the directors discussed the year's result, following which the

chairman asked for suggestions to improve the situation.

You are required as management accountant, to evaluate the following alternative proposals and

to comment briefly on each:

$($a$)$ Pay Salesman a commission of $10\%$ of sales and thus increase sales to achieve break

even point.

$[5$ marks$]$

$($b$)$ Reduce selling price by $10\%,$ which it is estimated would increase sales volume by $30\%$

$[3$ marks$]$

$($c$)$ Increase direct wages rates from $K4$ to $K5$ per hour, as part of a productivity$/$ pay deal. It

is hoped that this would increase production and sales by $20\%,$ but advertising costs

would increase by $K50,000.$

$($d$)$ Increase sales by additional advertising of $K30,000,$ with an increased selling price of

$20\%,$ setting a profit margin of $10\%$

$[8$ marks$]$