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6 Sometimes, a product may be added to the existing lines of products with a view to utilise idle facilities, to capture a new market
6 Sometimes, a product may be added to the existing lines of products with a view to utilise idle facilities, to capture a new market or for any other purpose. The profitability of this new product has to be found out initially. Usually, the new product will be manufactured if it is capable of contributing something toward fixed costs and profit after meeting its variable costs. Illustration 5: A concern manufacturing product x has provided the following information: Rs. Sales 75,000 Direct materials 30,000 Direct labour 10,000 Variable overhead 10,000 Fixed overhead 15,000 In order to increase its sales by rs.25,000, the concern wants to introduce the product y, and estimates the costs in connection therewith as under: Direct materials Direct labour Variable overhead 10,000 8,000 5,000 Fixed overhead Nil Advise whether the product Y will be profitable or not
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