2 Trans Ltd. manufactures three products, X, Y and Z. The present net annual income from each item is as follows: (20) X Y Z Total Sales Rs. 50,000 Rs.40,000 Rs.60,000 Rs.150,000 Variable Costs 30,000 25,000 35,000 90,000 Contribution margin 20,000 15,000 25,000 60,000 Fixed Costs 7,000 18,000 20,000 55,000 Profit (Loss) Rs. 3,000 Rs.( 3,000) Rs.5,000 Rs.5,000 Trans Ltd. is concerned about its poor profit performance, and is considering whether or not to cease selling Product Y. It is felt that selling prices cannot be increased or lowered without adversely affecting net income. Rs.8, 000 of the fixed costs of Product Y is direct fixed costs which would be saved if production ceased. All other fixed costs will remain the same. Required: a. Advise Trans Ltd. whether or not to cease production of Product Y. Assume that the total assets would be unaffected by the decision and the resources made available by dropping Product Y would remain idle. Show your calculation. b. Suppose, however, it were possible to use the resources realized by stopping production of Product Y, and switch to produce a new item, Product S, which would sell for Rs.50,000 and incur variable costs of Rs.30,000 and extra fixed costs of Rs.6,000. What will the new decision be? Show your calculations