Euro Engineering Ltd manufactures three types of ceramic coffee percolator; the Metal, pink and the Zinc models. The maximum market demand and resource requirements of each of these products are shown below.
The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half years supply of this special material is limited to 80,000kg.
Euro Engineering Ltd operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero.
The sales director has already accepted an order for 5,000 Metal percolators that, if not fulfilled, would incur a financial penalty of 12,000. This order is included in the Golds maximum market demand figure.
Continentals directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the normal way or whether it should consider breaching the contract and incurring the penalty. The selling prices, raw material costs, labour costs and other variable overheads rates per unit for 2023 financial year will be the same as those in 2022.
Budgeted data for the first year ended 2023
		Metal	Pink	Zinc
	Maximum demand	8,000	8,000	9,000
	Heat resistant material per unit	3 Kg	5 Kg	4 Kg
	Actual results for August 2022
		Metal	Pink	Zinc	Total
	Sales (units)	7,500	5,000	4,300	16,800
	Sales revenue ()	190,000	160,000	450,000	800,000
	Raw materials ()	66,000	76,000	134,000	276,000
	Direct labour ()	26,400	29,000	110,000	165,400
	Semi-Variable Overheads ()	67,200	48,000	90,000	205,200
	Total Costs	159,600	153,000	334,000	646,600
	Profit / (Loss) ()	30,400	7,000	116,000	153,400
	Actual results for August 2021
		Metal	Pink	Zinc	Total
	Sales (units)	8,000	6,000	6,700	20,700
	Sales revenue ()	202,667	192,000	701,163	1,095,829
	Raw materials ()	65,000	76,000	222,000	363,000
	Direct labour ()	28,000	23,500	190,000	241,500
	Semi-Variable Overheads ()	70,000	49,000	130,000	249,000
	Total Costs	163,000	148,500	542,000	853,500
	Profit / (Loss) ()	39,667	43,500	159,163	242,329

Use management accounting techniques for example High-Low Method where applicable.

1 Applying marginal costing techniques, rank the products

2 Prepare a budgeted production schedule and a marginal cost income statement (analysed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract honoured

3. Prepare a budgeted production schedule and a marginal cost income statement (analysed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract IS NOT honoured

4 Considering calculations above and other qualitative issues, advise Euro Engineering Ltd directors whether to honour or dishonour the Metal Percolator Contract

5 Budgeting serves various purposes including planning, control, motivation and communication. You have been requested by Clara Ores the Finance Director to explain to Euro Engineering Ltd directors the importance of budgeting in light of the purposes above