Strategic Management Accounting

Q1. Two of the ready family size meals CowFarm produces and sells are: V (Vegan) and M (Meat).

Budgets prepared for the next six months give the following information:

Ready meal V / unit Ready meal M / unit

Selling price 10.00 12.00

Variable costs: production and selling 5.00 10.00

Common fixed costs: production and selling for six months 561,600

Required, in respect of the forthcoming six months:

(i) to state what the break-even point in (i.e., value) will be and the number (i.e., volume) of each product this figure represents if the two products are sold in the ratio 4V to 3M;

(ii) to state the break-even point in s (i.e., value) and the number (volume) of products this figure represents if the sales mix changes to 4V to 4M (ignore fractions of products);

(iii) to advise the sales manager which product mix should be better, that in (i) above or that in (ii) above, and why;

(iv) to advise the sales manager which one of the two products should be concentrated on and the reason(s) for your recommendation assume that whatever can be made can be sold, that both products go through a processing process and that there are only 32,000 processing hours available, with product V requiring 0.40 hour per unit and product M requiring 0.10 hour per unit.