14 You have recently been appointed as a consultant to the Murphy Manufacturing Company. The management of the company has prepared a report showing certain data concerning CHAI 17 ACCOUNTING FOR DECISION MAKING: WITH AND WITHOUT RESOURCE CONSIIL :IS 593 the two products Mox and Tox. The following information has been extracted from this report: 2000- 1000 Monthly sales in units 150 3.00 Selng price Costs 050 0.80 Drect materals Direct materials 0.80 0.50 Direct labour 1.00 0.20 Fixed overheads 140 0.50 Total cost 3.20 120 Profit (loss) (0.20) 0.30 In view of the poor results shown by Max, the follwing changes have been proposed by management: Abandon the production of Max and buy in 1000 units per month for $2800. The quality is identical and selling price will remain unchanged. Use the spare capacity to make Cox. It is estimated that 1000 units could be sald at $l esch Material costs are $0.40 per unit and labour costs $0.20 All overheads are fixed and are not expected to change from the present cost of $2000 per month. No inventories are held. : Comment on the suitability of management's approach to assessing product profitability, as dlustrated in the report, and indicate any ways in which you think it could be improved. t Prepare a monthly statenent of compreherave income for the present program and the proposed ers program. Do the proposed changes uppear to be profitable? Explan thereasces for your arewer. 15 Burco Ltd produces and sels two products. Xand Y. During the lat year, 700 hours were warked