Problem 44 Danoly is a company that manufactures 3 products: Milk, Natural Yoghurt and Fruit Yoghurt. The company is divided in 3 profit centers, each producing one product. Until now, each division has to satisfy, firstly, the internal demand before it can satisfy the demand from the external market. The selling price for internal or external demand is the same. Two units of milk are needed to produce one unit of natural yoghurt and one unit of natural yoghurt is needed to produce one unit of fruit yoghurt. > The expected Profit & Loss Account for next year is as follow: Table A Milk Natural yoghurt Fruit yoghurt Sales 400.000 200.000 350.000 Direct materials Gross milk 200.000 Milk 100.000 Natural yoghurt 200.000 Fruit 20.000 Other variable costs 150.000 20.000 C 80.000 C Contribution margin 50.000 C 80.000 C 50.000 C Fixed costs 30.000 20.000 10.000 EBT 20.000 60.000 C 40.000 C > Other information: Natural Fruit Table B Milk yoghurt yoghurt External Demand (units) 300.000 100.000 50.000 Internal Demand (units) 100.000 50.000 0 Installed capacity (units) 500.000 50.000 100.000 Used capacity 80% 100% 50% Market selling price per unit 1 C 4 C 7 C Number of machine hours used per unit produced 1 3 However, due to the damage of a machine (used to produce all the 3 products), the capacity of production will have to be reduced to 200.000 Machine hours. 1) Which product mix will maximize the profit for the company as a whole? What is the expected contribution margin? Imagine now that the company could repair/fix the machine on time of the production for next year, and the installed capacity available is the one mentioned in Table B. The Natural yoghurt division receives a special order for a new client that is willing to pay 50.500 for it. This order requires 20.000 units of milk and 23.000 of other variable costs. If the division accepts this

special order, it will reduce the production of natural yoghurt in 5.000 units. 2. Do you think that the Company as a whole, should accept this special order? Show your supporting calculations. 61 de 96 Problem 44- 1. 50.000 Natural and 25.000 Fruit 2. Relevant Costs 48500; Accept

Answer It with explanation

Danoly is a company that manufactures 3 products: Milk, Natural Yoghurt and Fruit Yoghurt. The company is divided in 3 profit centers, each producing one product. Until now, each division has to satisfy, firstly, the internal demand before it can satisfy the demand from the external market. The selling price for internal or external demand is the same. Two units of milk are needed to produce one unit of natural yoghurt and one unit of natural yoghurt is needed to produce one unit of fruit yoghurt. - The expected Profit \& Loss Account for next year is as follow: Other information: However, due to the damage of a machine (used to produce all the 3 products), the capacity of production will have to be reduced to 200.000 Machine hours. Poge 61/96 NOVA SCHOOL OF BUSINESS \& ECONOMICS 1202 - MANAGEMENT ACCOUNTING HANDBOOK OF PROBLEMS 1) Which product mix will maximize the profit for the company as a whole? What is the expected contribution margin? Imagine now that the company could repair/fix the machine on time of the production for next year, and the installed capacity available is the one mentioned in Table B. The Natural yoghurt division receives a special order for a new client that is willing to pay 50.500 for it. This order requires 20.000 units of milk and 23.000 of other variable costs. If the division accepts this special order, it will reduce the production of natural yoghurt in 5.000 units. 2. Do you think that the Comp accept this special order? Show your supporting calculations. Problem 44- 1. 50.000 Natural and 25.000 Fruit