Exercise $3$: Cost $+$ Return Approach, Target Pricing $(5$ marks$)$

The new manager of an industrial company $($RM$)$ requested information about the company's operations in the past year. The manager obtained

the following information, some of which was of unknown value:

$\backslash$table$[[?,$Total sales revenue$],[500,000$ units,Number of units produced and sold$],[?,$selling price$],[$$$180,000,$Operating income$],[$$$2,250,000,$Total investment in assets$],[$$$4,000,$Unit variable cost$],[$$$2,500,000,$Annual fixed costs$]]$

Required:

$1-$ Calculate $($a$)$ total sales revenue, $($b$)$ selling price, $($c$)$ rate of return on investment, and $($d$)$ percentage of return as a percentage

of the total cost of the product.

$2-$ The new manager plans to reduce fixed costs by $$225,000$ and variable costs per unit by $$0\mathrm{.}30$ per unit while maintaining production and sales volume at $500,000$ units. Using the same return rate as required

$(1),$ calculate the new selling price.

Suppose the manager initiated the change in the required $(2)$ including the new selling price, but the reduction in the variable cost per unit resulted in a decrease in the quality of the product, which resulted in a $5\%$ decrease in sales volume compared to what it was before the change. Calculate the operating income $($loss$).$ any, do you see in the requirement $(3)$ other than the problem of low product quality that you see in the implementation of

the manager's plan? Explain briefly.