ABC Ltd makes three products and reviewing the profitability of its product line. You are given following budgeted data about firm for coming Year.

ProductsF1F2F3

Sales (in Units 000)12010080

Revenue (RS. in 0000)14415088

Costs: Rs.)

Material480,000500,000240,000

Labor320,000400,000160,000

Overheads600,000650,000360,000

14000,0001550,000760,000

Profit / (Loss)40,000(50,000)120,000

The company is concerned about the loss on products F2. It is considering ceasing production of it and switching the spare capacity of 100,000 units to product F3.

You are told:

1. All production is sold.
2. 75% of the labor cost for each product variable in nature.
3. Fixed administration overheads Rs.900, 000 in total have been apportioned to each product on the basis of Units sold and are included in overhead costs above. All other overhead costs are variable in nature.
4. Ceasing production of product F2 would eliminate the fixed labor charge associated with it and one-sixth of fixed administration overhead apportioned to Product F2.
5. Increasing the production F3 by 100,000 units would mean that fixed labor cost associated with product F3 would double, the variable labor cost would rise by 20% and its selling price would have to be decreased by Rs. 1.50 in order to achieve the increased sales.

Required:

a)Prepare marginal cost statement for a unit of each product on the basis of:

i.The original budget:

ii.If product F2 is deleted.

b)Preparea statement showing total contribution and profit of each product group on the basis of:

i.The original budget:

ii.If product F2 is deleted.

c)Using result (a) and (b) advice whether product F2 should be deleted from product range, giving reasons for your decisions.(Marks 5)