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Cost accounting plays an important role in informing pricing decisions to ensure profitability and identifies areas where the company can better control costs. It is
Cost accounting plays an important role in informing pricing decisions to ensure profitability and identifies areas where the company can better control costs. It is often that a company manufactures more than one product and faces a shortage of a single resource that is required in the production of its multiple products. In that case, management need to make decision in terms of which products should be produced to maximise profits in order to gain competitive advantage. Farmbest Limited owns 200,000 square metres (m2) of land on which they grow apple, mangoes, and oranges. The following information is provided relating to the anticipated demand and productive capacity for next month: Sales per tonne of $250 output Variable costs per $150 tonne of output Fixed costs per 5 tonne of output M2 required per 70 34 2 tonne of output Estimated Sales 3,000 3,000 3 000 demand (tonnes) Required area to 210,000 102,000 66,000 meet sales demand 2 (m ) in the short term, it is not possible to increase the area of land more than 200,000m2 for growing the above crops. HI 3 2 Question: Advice how the behaviour of cost would affect the decisionmaking process considering the limiting factor of land resources and provide a detailed explanation and argument on how the business make decisions in the shortterm considering the limiting factor on the land resources and other qualitative factors
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