aka Sangura Limited produces three different products for which the following operating statement has been produced:

Product X Product Y Product Z Total

Sh. Sh. Sh. Sh.

Sales 5,000,000 7,200,000 5,200,000 17,400,000

Total costs 3,800,000 6,500,000 5,600,000 15,900,000

Net profit/(Loss) 1,200,000 700,000 (400,000) 1,500,000

Installed capacity (Units) 5,000 6,000 units 8,125 units

Current production 90% 80% 80%

The following additional information was also made available

i. Total costs comprise 60% variable and 40% fixed for products X and Y while product Z is 62.5% variable and 37.50% fixed.

ii. No fixed cost is peculiar to any product and fixed cost will not change in the event of increasing production of any of the products to full installed capacity.

iii. The Directors are considering dropping product Z in the light of an additional order that will take the production to full installed capacity.

You are required to prepare a statement advising the Directors whether to

a) a. Discontinue product Z (10 Marks)

b) b. Take up the additional order (5 Marks)

(TOTAL 15 MARKS)

End of Exam