You work for a consulting firm that has been approached by a client who is concerned about the future of their business. The board of directors of AJ Supplies Ltd are considering halting the production of 2 of their products that appear to be making no profit.

As you can see from the table below the directors are considering closing products Bass and Clarinet in an effort to improve overall profitability.

You spot that management accounting would show the results differently and may affect the directors decision.

			Acoustic	Bass	Clarinet	Total
			(m)	(m)	(m)	(m)
	Sales		360	240	180	780
	Cost of sales
		Materials	(120)	(80)	(80)	(280)
		Labour	(120)	(120)	(120)	(360)
		Overheads	(60)	(60)	(60)	(180)
	Profit/(loss)		60	(20)	(80)	(40)

Requirements for Question 2 part (a)

1. Use your knowledge of management accounting to calculate the contribution of each product 5 marks

2. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Bass. 1 mark

3. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Clarinet. 1 mark

4. Discuss how and why marginal costing calculates contribution to pay overheads and why this is useful in evaluating product value to a firm? 1 mark

5. Do you agree that profitability will improve by ceasing to make Products Bass and Clarinet? What do you suggest the company does to increase profitability? 2 marks