Brass Ltd.manufactures three products, Swans, Ducks and Chicks. The present net annual income from each item is as follows:

Swans

Ducks

Chicks

Total

$

$

$

$

Sales

50,000

40,000

60,000

150,000

Variable costs

30,000

25,000

35,000

90,000

Contribution

20,000

15,000

25,000

60,000

Fixed costs

17,000

18,000

20,000

55,000

Profit/(loss)

3,000

(3,000)

5,000

5,000

Brass Ltd. is concerned about its poor profit performance, and is considering whether or not to cease selling Ducks. It is felt that selling prices cannot be increased or lowered without adversely affecting net income. $5,000 of the fixed costs of Ducks are direct fixed costs which would be saved if production ceased. All other fixed costs will remain the same.

a) Advise Brass Ltd. whether or not to cease production of Ducks.

b) Suppose, however, it were possible to use the resources realised by stopping production of Ducks, and switch to produce a new item, Eagles, which would sell for $50,000 and incur variable costs of $30,000 and extra fixed costs of $6,000. What will the new decision be? (15 marks)