Condensed Income Statement

For the Year Ended December 31, 2019

Sardines GHS

Tuna Flakes GHS

Oatmeal GHS

Total GHS

Sales Costs of goods sold: Variable costs Fixed costs Total cost of goods sold

500,000 220,000 120,000 340,000

400,000 200,000 80,000 280,000

100,000 60,000 20,000 80,000

1,000,000 480,000 220,000 700,000

Gross profit 160,000 120,000 20,000 300,000

Operating expenses: Variable expenses Fixed expenses

95,000 25,000

60,000 20,000

25,000 6,000

180,000 51,000

Total operating expenses 120,000 80,000 231,000

Income (loss) from operations 40,000 40,000 69,000

Management is contemplating on whether or not to discontinue Oatmeal.

Required:

a. Advise management whether or not to discontinue Oatmeal and support your answer with calculations depicting the contribution derived from Oatmeal and the effect of discontinuing oatmeal on overall profits of battle field Limited.

(9 marks)

b. Most Management decisions are affected by the nature, purpose and behavior of costs. You have been tasked by the management of battlefield Limited to educate the staff of its Accounts department on the effects of the various classifications of costs on their decisions. Prepare your notes for this presentation.