Rainbow Pty Ltd manufactures and sells commercial kitchen exhaust systems. The market covers both new systems as well as parts for replacements in older systems. Rainbow developed its business plan based on the assumption that the exhaust system can be sold for $$8,100$ each. The variable cost of each exhaust system is estimated at $$4,860,$ and the annual fixed manufacturing overheads are budgeted at $$700,000.$ Rainbow has targeted a profit of $$425,000($for simplicity, ignore income tax$).$ The fixed costs will be shared between the completed kitchen exhaust systems and the parts used for replacements, which will be sold separately from the completed product. Below are the details of machine hours and labor hours incurred in these two functions:

Completed products Completed parts

Machine hours: $700$ Machine hours: $300$

Direct labor hours: $900$ Direct labor hours: $500$

The overheads will be allocated to completed products and completed parts based on either machine hours or labor hours.

While Rainbow's sales usually rise during the third quarter, the September financial statement reported that sales were not meeting expectations. For the first $8$ months of the year, only $175$ units had been sold at the established price, with variable costs as planned. It is clear that the business plan$$s profit estimation will not be reached unless some actions are taken. Rainbow$$s president, Marie Mann, assigned a management accounting team to analyze the situation and develop several alternative courses of action. The following mutually exclusive alternatives were presented to the president:

Reduce the sale price by $7\mathrm{.}5\%.$ The sales department forecasts that with the significantly reduced sale price, $155$ units can be sold during the remainder of the year. Total fixed and variable unit costs will stay as budgeted.

Lower variable costs per unit by $$150$ through the use of less expensive raw materials and slightly modified manufacturing techniques. The sales price would also be reduced by $2\mathrm{.}5\%$ to attract more customers, and sales of $115$ units would be achieved for the remainder of the year. Other variable costs and fixed costs will stay as budgeted.

Cut fixed costs by $$30,000$ and lower the sale price by $4\%.$ Variable cost per unit will stay the same. Sales of $130$ units are expected for the remainder of the year.

Required:

Assuming that the fixed overheads will be allocated based on machine hours, calculate the allocated fixed overheads to the completed products. Summarize the full costs of completed kitchen exhaust systems.

If no changes are made to the selling price and$/$or cost structure, determine the number of units that Rainbow Company must sell: a$.$ In order to break even. b$.$ To achieve its profit objectives. Based on Rainbow's sales situation, comment on the feasibility of the current budget plan as compared with the break$-$even sales level and the profit objective.

Determine which one of the alternatives Rainbow should select to achieve its annual after$-$tax profit objectives. Which one might yield the highest net profit to Rainbow for the whole year?

Using the information from Option $1,$ prepare the structured income statement to illustrate the performance of Rainbow in the current fiscal year $($assuming from $1/7/2022$ to $30/06/2023).$ Assume that fixed costs consist of the following expenses:

Marketing expenses: $$130,400$

Selling and distribution expenses: $$135,000$

Administrative expenses: $$112,600$

Wages and salary expenses: $$197,000$