Jasmine currently manufactures three types of radio-controlled boats: standard, advanced and deluxe.

Budgeted fixed costs for the year ahead are 250,000.While standard and advanced boats will be produced at near full manufacturing capacity, there is plenty of spare productive capacity in terms of deluxe.

The following data shows the budgeted selling prices and volumes together with variable costs per unit for each of the models.

	Standard	Advanced	Deluxe
Sales Volume	6,400	4,200	780
Selling Price	150	210	480
Direct Materials	40	60	130
Direct Labour	25	25	80
Variable Overheads	25	30	50

Before the start of the year ahead, and the need to finalise planned production of the three boats, the directors are informed the Deluxe model has not been selling well. It is thought to be too expensive in the current market. Jasmine has now two new choices:

1. to drop the selling price of the Deluxe model by 60, which market research indicates will increase the sales by 40%; or
2. to drop the Deluxe model from their range.

The labour which is currently used on the Deluxe model could then be transferred to increase the production of the Standard or Advanced model, or of both models equally.

Further information

i.Assume that all production is sold.

ii.Any change in production of the Deluxe model incurs no new productive capacity or period cost.

iii.Any increase in production of either the Standard or the Advanced model incurs extra fixed costs of 30,000

iv.Any increase in production of either the Standard or the Advanced would require no changes to their variable cost per unit.

a.Prepare a table showing the unit and total contributions as well as the profit if Jasmine continue with their budget plan. The table should show to operating profit level information for each product as well as the total profit. The model should show assumptions for sales volumes, selling price and total fixed costs separately and be capable of being sensitised to allow changes to those assumptions. You will be awarded marks for accuracy and completeness of the table, the ease of sensitising and the presentation of the table.

b.Evaluate the choices available to Jasmine and state which choice you would recommend. Your evaluation should include similar tables to that prepared in a) above.

c.Contribution analysis is often used to evaluate a 'one off' contract or order. Discuss the advantages as well as the disadvantages of using contribution analysis in such a scenario.

d.Explain what is meant by sensitivity analysis in contribution analysis and state the advantages in using such a technique.