Venus Ltd is a company engaged solely in the manufacture of sweaters, which are bought mainly for sporting activities. Present sales are direct to retailers, but in recent years there has been a steady decline in output because of Covid 19 pandemic. In the last year 2020, the accounting report indicated that the company produced the lowest profit for 10 years. The forecast for 2021 indicates that the present deterioration in profits is likely to continue. The company considers that a profit of RM 500,000 should be achieved to provide an adequate return on capital. The managing director has asked that a review be made of the present pricing and marketing policies. The marketing director has completed this review and passes the proposals on to you for evaluation and recommendation, together with the profit and loss account for year ending 31 December 2020. RM RM Sales (280,000 units @ RM 18) Factory cost of goods sold: - Direct materials - Direct labour - Variable factory overhead - Fixed factory overhead Contribution Administrative overhead Selling and Distribution overhead: - Commission (5% of sales) - Delivery cost (25% of variable factory overhead) - Fixed cost Profit 480,000 1,200,000 760,000 880,000 252,000 190,000 320,000 5,040,000 (3,320,000) 1,720,000 (680,000) (762,000) 278,000 Required: a) Calculate the break-even point (in units and value), and margin of safety (in unit and value). b) If in 2021, the company decides to have a profit at RM 600,000, calculate how much sales are needed in unit and value. c) Based on your answer in (b), calculate the break-even point and margin of safety (in units and value). d) If in 2021, the company decides to reduce the number of sales to 200,000 units. Calculate the new profit, break-even point (in units and value) and margin of safety (in unit and value). 4 e) One of the managers came out with 3 proposals in order to improve the companys performance. For each proposal, calculate the contribution margin and discuss which proposal that the company should take on. Proposal 1 Reduce selling price by 10%. This would increase demand by 45%. Proposal 2 An inquiry was made by another company, Laura Ltd, to supply 80,000 units of sweaters annually to them. If the company decides to take the contract, the company needs to provide special additional packaging at a cost of RM 1.00 per sweater. The marketing director considers that in 2021 the sales from the existing business would remain unchanged at 280,000 units, based on a selling price of RM 20 if the contract is undertaken. Proposal 3 Reduce the selling price of sweaters by 10%. This would increase the sales volume to 320,000 unit of sweaters. However, the company will incur additional cost for advertisement at RM 30,000