Question

ESY a manufacturing concern and sell its product A to northern region of country.

Information related to product sales price and costs is as follows:

Particulars Rs (per unit)

Sales price 1,500

Direct material 418

Direct labor 200

Other variable overhead 52

Fixed overhead 67

Requirement:

1. Compute contribution margin per unit and also discuss how it depicts

satisfactory condition in given scenario.

2. Company management decides to expand its operation by selling its product to

Eastern region of the country from the next quarter of the year. In this regard,

how sales and production estimates (budgets) would be important to prepare

master budget so that management may take decision whether to expand its

operation. Explain your answer with suitable example(s).