=+1. Note: although this exercise ideally requires a computerized spreadsheet, it is possible to complete it manuaIly.

Pygmalion Products manufactures and seIls two products, A and B, which are both made in the same factory using the same machinery. At present A is the main product, but sales of Aare declining slowly and it is hoped to build up sales of B to compensate for the lost sales of A.

At the end of December the Managing Director calls upon you, as Chief Accountant, to forecast what the likely outcome of present trends will be. You note that December sales of A were 5000 unit and have been undergoing a cumulative decline of 3% per month (i.e., each month's sales are 3% less than the previous month); the selling price is 00 per unit. December sales of B were 1000 units, but have been growing at 12% per month (cumulatively). The list price of B is f20 per unit, but an introductory discount of 10% has been offered, valid until the end of March next year. At these prices you expect the steady 3% decline of A's sales and the 12% growth in B's sales to continue for the next year.

Details of the standard unit production costs are given below and are expected to be valid throughout the coming year:

Direct labour cost Raw material cost Variable factory overhead A

f2 f4 o

B f 3 fl0 f 1 Fixed factory overhead amounts to f13 000 per month (of which 0000 per month is depreciation) and is allocated to products pro rata to their total direct labour costs. Selling and distribution costs comprise a fixed cost of f500 per month for product A and f 1000 per month for product Band a variable cost of fO.50 per units sold for both products.