Advanced: Calculation of cost per unit, break-even point and recommended selling price Amongst its products a chemical company markets two concentrated liquid fertilizers - type P for flowers and type a for vegetables. In 1987 total sales are expected to be restricted by forecast sales of type a which are limited to 570 000 litres for the year. AI this level the plant capacity will be under-utilized by 20%.

The fertilizers are manufactured jointly as follows:

Mixing: Raw materials A and Bare mixed to-gether in equal amounts and filtered. After filtering there is a saleable residue, X, amounting to 5% of the input materials.

Distillation: The mixed materials are heated and there is an evaporation loss of 10%. The remaining liquid distils into one-third each of an extract P, an extract a and a by-product Y Blending: Two parts of raw material C are blended with one part of extract P to form the fertilizer type P One part of raw material D is blended with one part of extract a to form the fertilizer type a Fertilizer type P is filled into 3-litre cans and labelled Fertilizer type a is filled into 6-litre preprinted cans. Both are then ready for sale.

The costs involved are as under:

The residue X and by-product Y are both sold to local companies at £0.03 and £0.04 per litre respectively. Supplies are collected in bulk by the buyers using their own transport. The sales revenue is credited to the process at which the material arises.
Product costs are apportioned entirely to the two mam products on the basis of their output from each process.
No inventories of part-finished materials are held at any time.
The fertilizers are sold through agents on the basis of list price less 25%. Of the net selling price, selling and distribution costs amount to 131h% and profit to 20%. Of the selling and distribution costs 70% are variable and the remainder fixed.
You are required to:

(a) calculate separately for the fertilizers type P and type a for the year 1987:
(i) total manufacturing cost, (ii) manufacturing cost per litre, (iii) list price per litre, (iv) profit for the year; (18 marks)

(b) calculate the break-even price per litre to manufacture and supply an extra 50000 litres of fertilizer type a for export and which would incur variable selling and distribution costs of £2000; (8 marks)

(c) state the price you would recommend the company should quote per litre for this export business, with a brief explanation for your decision.

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For 12225 ABCD Raw Cost per material 100 litres () 20 55 Cans Cost each () 3-litre 0.32 6-litre 0.50 Labels Cost per 1000 () 3-litre 3.33 cans Manufacturing costs: per 100 litres of input processed Direct Variable wages overhead () () Mixing 2.75 1.00 Distilling 3.00 2.00 Fixed overhead per year () 6000 20000 Blending 5.00 2.00 33 250