ABC Ltd. manufactures cakes in three varieties—A, B, and C—each requiring similar material, labour, and production facilities. The trading results of the firm for current year ending March are as under:

The cake of variety C, despite best efforts, does not yield the desirable margin and thus the firm has decided to discontinue its production. However, the other two varieties, A and B, have good potential to grow and the market can easily absorb the increased production. The firm has, therefore, decided to raise the production of these varieties by diverting the labour and production facilities engaged in production of variety C.
In accordance with this, it is decided, effective April 1, to transfer two-thirds of the labour engaged in variety C to variety A and the remaining one-third to variety B, thus totally discontinuing production of variety C.
The following data for the next year beginning April is also available:

(a) Total direct wage bill for the next year would be at the same level as for the last year ending March.

(b) Similarly, the variable costs per unit of production and the selling price are to be assumed unchanged in the forthcoming year beginning April.

(c) Fixed overheads would increase by ₹55,200.
You are required:

(a) To prepare the budget for next year beginning April in the same format as given above

(b) To analyse and compare the budget for the year beginning April with that of the previous year and highlight main features, and

(c) To advise the management on comparative profitability if two-thirds of the workers engaged in C are transferred to B instead of A and the remaining one-third are engaged in A instead of B. Give detailed reasoning for your advice.

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Particulars A Sales *21,44,000 B *17,20,000 *10,40,000 C Total *49,04,000 Variable costs: Material 5,36,000 5,16,000 4,16,000 14,68,000 Wages Overheads 4,28,800 2,58,000 3,36,000 10,22,800 4,28,800 2,58,000 3,36,000 10,22,800 Total 13,93,600 10,32,000 10,88,000 35,13,600 contribution 7,50,400 6,88,000 (48,000) 13,90,400 Fixed overheads 8,70,400 Profit 5,20,000