3

Question two KCBC Ltd makes three products and s reviewing the profitability of its product lire. You are given the following budgeted data about the firm for the firm for the coming year. Product SARIA BIMA DADA BIMA SARI (000) (000) (000) Revenue 1,500 1,440 880 Sales (in units) 100 120 80Costs: Materials 500 480 240 Labour 400 320 160 Overhead 650 600 360 1,550 1,400 760 Profit/ (loss) (50) 40 120 The company is concerned about the loss on product SHARIA. it is considering ceasing production of it and switching the spare capacity of 100,000 units to product BIMA SARI You are told; All production is sold. 20% of the labour cost for each product is fixed in nature. Fixed administration overheads of 900,000 in total have been apportioned to each product on the basis of units sold and are included in the overhead costs above. All other overheads costs are variable in nature. Ceasing production of product SHARIA would eliminate the fixed labour charge associated with it and one-sixth of the fixed administration overhead apportioned to product Increasing the production of product BIMA SARI by 100,000 units would mean tat the fixed labour cost associated with product BIMA SARI would double, the variable labour cost would rise by 20% and its selling price would have to be decreased by 1.50 in order to achieve the increased sales. Required; Prepare a marginal cost statement for a unit of each product on the basis of;Total manufacturing cost 18 360,000 The same component can be bought at sh. 16 per unit. Required: Should the company buy or make the component if the fixed costs are assumed to be consumed whether the company buys or makes the components. (5 mks