A small company manufactures two products, selling 10,000 units of A and 30,000 units of B. The results in 1984 were

A Β
£ £ £ £
Sales 25,000 40,000 Materials 8,000 18,000 Labour 7,000 16,000 Variable overhead 2,000 3,000 Fixed overhead 4,000 21,000 5,000 42,000 Net Profit (Loss) 4,000 ( 2,000)

(i) The directors propose to abandon product Β in order to increase the overall profit from £2,000 to £4,000. Advise them.
(ii) The company is approached by a new customer who offers to take 4,000 units of product A at £2.00 per unit. Should the company undertake the order, assuming it has spare capacity?
(iii) The company has already manufactured and has in store 2,000 units of product C—a line which it abandoned two years ago because there was no longer a market. The product costs had been:

Cost per unit £
Material 0.75 Labour 1.20 Variable overhead 0.35 Fixed overhead 1.40 £3.70 An offer is made to buy all 2,000 units for £4,400. Should the company accept?

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A B Sales 25,000 40,000 Materials 8,000 18,000 Labour 7,000 16,000 Variable overhead 2,000. 3,000 Fixed overhead 4,000 21,000 5,000 42,000 Net Profit (Loss) 4,000 (2,000)