Problem 10 A company produces 30,000 units of product A 20,000 units of product B per annum. . The sales value and costs of the two products are as follows: $ Sales value 7,60,000 Direct material 1,40,000 Direct labour 1,90,000 Factory overheads 1,90,000 Administrative and selling overheads 1,20,000 50% of factory overheads are variable and 50% of administrative and selling overheads are fixed. The selling price of A is $12 per unit and B is $20 per unit. The direct material and labour ratio for product A is 2:3 and for B is 4:5. For both the products, the selling price is 400% of direct labour. The factory overheads are charged in the ratio of direct labour and administrative and selling overheads are recovered at a flat rate of $ 2 per unit of A and $3 per unit of B. Due to fall in demand of the above products, the company has a plan to diversify and make product using 40% capacity. It has been estimated that for direct material and direct labour will be $2.50 and $3 per unit, respectively. Other variable cost will be same as applicable to product A. The selling price of product is $14 per unit and production will be 30,000 units. Assuming 60% capacity is used for manufacture of A and B, calculate: (a) present costs and profit, (b) cost and profit after diversification, and (C) given your recommendation as to whether to diversify or not