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96. Marginat Costing and Budgeting - Change in Product Mix, Costs and Prices UK Limited manufactures three products D, E and F each requiring similar Material, Labour and Production Facilities. Trading results of the Company for the previous year ending 31st March are as under: (Amounts in 3) F Total Particulars D 30,20,000 82,60,000 Sales 38,50,000 9,06,000 26,09,500 Variable Cost: Material 10,78,000 6,04,000 20,14,500 Labour 9,24,000 4,83,200 15,14,300 Overheads 7,39,200 19,93,200 61,38,300 Total Variable Cost 27,41,200 10,26,800 21,21,700 Contribution 11,08,800 (13,900) 12,60,000 Less: Fixed Overheads Profit 8,61,700 Product E, despite best efforts, does not show any good prospect to yield reasonable margins and it is not possible to raise its price so as to make it profitable. The Company has decided to discontinue its production w.e.f. 1st April of the forthcoming year. Products D and F have good potential to grow and the market can easily absorb the increased production. The Company has decide to raise the production of Products D and F by diverting the 60% Labour of Product E to Product D and balance 40% to Product F. E 13,90,000 6,25,500 4,86,500 2,91,900 14,03,900 Following additional information is available for the forthcoming year beginning April: (A) Total Direct Wage Bill for the year would be at the same level as for the previous year ending 31st March. Material Cost per = unit will increase by 5%, however Variable OH per unit will remain same. Fixed OH would increase by * 96,500. (B) Selling Price per unit of Product D will increase by 4% and of Product F by 5%. Required: 1. Prepare Budget for the forthcoming year beginning April in the format as detailed above. 2. Compare and analyse the Budget for the last two years highlighting main features. Show calculation to the nearest Rupee. To advise the Management on comparative Contribution/Profitability if 60% Labour of Product E is transferred to Product Finstead of Product D as above and balance 40% to Product D instead of Product F. Show calculations up to three decimal points. Give detailed reasoning for your advice. 3
