i)25% of the labour cost for each product is fixed in nature.

iii)Fixed administration overheads of 900,000 in total have been apportioned to each

product on the basis of units sold and are included in the overhead costs above. All other

overhead costs are variable.

iv)Ceasing production of A would eliminate the fixed labour charge associated with it and

one-sixth of the fixed administration overhead apportioned to product A.

v) Increasing production of product C by 100,000 units would mean that the fixed labour

cost associated with C would double, the variable labour cost would rise by 20% and its

selling price would have to be decreased by 1.50 in order to achieve the increased sales.

Required:

a) Prepare a marginal cost statement for a unit of each product on the basis of:

i) the original budget

ii) if product A is deleted. (12 marks)

b) Prepare a statement showing the total contribution and profit for each product group on

the basis of:

i) the original budget

ii) if product A is deleted. (8 marks)

c) Using your results from (a) and (b) advise from whether product A should be deleted

from its product range, giving reasons for your decisions.

Global Ltd makes three products and is reviewing the profitability of its product line. The budgeted data for the firm is below: Product Sales in units A 100,000 f 1,500,000 B 120,000 f 1,440,000 80,000 f 880,000 Revenue Costs: Material Labour Overhead 500,000 400,000 650,000 1,550,000 (50,000) 480,000 320,000 600,000 1,400,000 40,000 240,000 160,000 360,000 760,000 120,000 Profit (loss) The company is concerned about the loss on product A. it is considering ceasing production of it and switching the spare capacity of 100,000 units to Product C. Additional information: i)All production is sold