Question $4-$ Mustafa GPS Ltd$.$

Mustafa GPS Ltd$.$ minufactures and sells the FindMe GPS Units.

The March financiat statements reported that sates were not meeting expectations. For the first three months of the year, only $350$ units had been sold at the original budgeted price. With variable costs stayin as planned, It was clear that the $2024$ Target Operating Incorne projection would not be renched unless some action was taken.

For its $2024$ business plan, Mustafa GPS had originally estimated the following:

Selling Price per FindMe GPS Unit

Variable cost per GPS Unit

Annual fixed cost

Target Operating Income

$$750$

$$475$

$$170,000$

$$460,000$

At the request of the President of Mustafa GPS the management committee presented the following separate alternatives to the president:

Al Cut fixed costs by $$20,000$ and lower the selling price by $5\%.$ Variable costs per unit will be unchanged. Sales of $2,500$ units are expected for the remainder of the year.

B$)$ Reduce the selling price by $$50.$ The sales team forecasts that, with the significantly reduced selling price, $3,200$ units can be sold during the remainder of the year. Total fixed and variable unit costs will stay as budgeted.

Required: $(12$ Marks$)$

$1)$ Under the current production policy, determine the number of units that the company must sell

$$to break even and

$$to achieve its desired target operating income.

$2)$ The president knows that something needs to change to achieve the desired operating income.

Of the alternatives above which should be selected by the president? Explain