QUESTION 3 (20) 3.1 REQUIRED Study the information provided below and consider each ofthe proposals independently 3.1.1 Calculate the total Contribution margin and Operating profit/loss per month ifProposallis implemented. (4) 3.1.2 How many litres of diesel need to be sold each month to achieve the operating profit of R25 000 per month, if Proposal 2 is accepted? (4) 3.1.3 Calculate the saving in monthly fixed coststhat is necessary to yield an operating profitof R20 000 if Proposal 3 is accepted. (4) INFORMATION An entrepreneur recently opened a service station, selling only diesel. Diesel is sold at R16 per litre and the variable costs total R14 per litre. The fixed costs per month are R136 200. After six months of opening, the sales achieved was 540 000 litres and the sales were more or less the same volume each month. In an attempt to improve performance, the entrepreneur is consideringthe following proposals: Proposal 1 customers will be allowed to purchase d on credit. It is estimated that 60% of the average monthly sales (in litres) will be to customers who would take advantage of this opportunity. Sales to these customers should increase by 25% as they are expected to buy exclusively from this service station. Sales volumes to customers who donot take advantage of the credit policy are expected to remain unchanged. Additional costs arising from this proposal are expected to be: Bad debts of 1% of the sales value in respect of customers who use the credit facility. Fixed administrative costs of R7500 per month. Proposal 2 the entrepreneur would ideally want an operating profit of R 25 000 per month. To achieve this the following changes are suggested: selling price is reduced by R0.30 per litre. a sales commision of R 1.50 per 10 litres sold will be granted to the diesel attendants. R 5000 per month will be spent on advertising. Proposal 3 The posssibility of only operating from 06:00 to 22:00 is being considered. The earlier closing time is expected to result in a loss of sales on average of R 12 500 litres per month. It is hoped that the saving in fixed costs resulting from the reduction in operating hours will enable the entrepreneur to achieve an average monthly operating profit of at least R 20 000. Calculate the saving in monthly fixed costs that is necessary to yield an operating profit of R 20 000 if Proposal 3 is implemented