The revenue, Exclusive Ltd produces three different products: Beta, Gamma, Delta. contribution margin and the fixed...

 

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The revenue, Exclusive Ltd produces three different products: Beta, Gamma, Delta. contribution margin and the fixed costs allocated to the three products are as follows: Particulars Gamma Delta Beta $1,000,000 Sales revenue $800,000 $200,000 40% 30% Contribution margin ratio Fixed costs 25% $90,000 $340,000 $180,000 'Delta' product line absorbs $50,000 of organisational fixed costs, while $40,000 are fixed costs directly attributable to the production of Delta units. The CFO of Exclusive Ltd has been highlighting to the CEO and the Chairman of the board that the Delta product line has been making losses in several quarters over the last 5 years. Hence, the management wishes to consider the following two alternatives: Discontinue the 'Delta' product line to avoid the loss. Discontinue the 'Delta' product line and utilise the capacity to manufacture product 'Rho'. In this case, sales revenue from product 'Rho' is estimated to be $200,000 and the contribution margin ratio for 'Rho' is estimated to be at 35%. The fixed costs directly attributable to Rho would be the same as the fixed cost directly attributable to Delta. As an expert on cost analysis, you are approached by the CFO of Exclusive Ltd to conduct a detailed analysis of the two alternatives available for the management and to provide appropriate recommendations. Required (a) Determine the current product-wise and overall profitability for Exclusive Ltd by preparing a marginal costing income statement. (b) Evaluate the option (i) listed above in the case study and note down any observations based on your analysis. Show detailed calculations. (c) Evaluate alternative (ii) listed above in the case study and note down your observations based on your analysis and provide a final recommendation for the management of Exclusive Ltd as to which of the two alternatives would be most beneficial for the company. Support your recommendation with detailed calculations. The revenue, Exclusive Ltd produces three different products: Beta, Gamma, Delta. contribution margin and the fixed costs allocated to the three products are as follows: Particulars Gamma Delta Beta $1,000,000 Sales revenue $800,000 $200,000 40% 30% Contribution margin ratio Fixed costs 25% $90,000 $340,000 $180,000 'Delta' product line absorbs $50,000 of organisational fixed costs, while $40,000 are fixed costs directly attributable to the production of Delta units. The CFO of Exclusive Ltd has been highlighting to the CEO and the Chairman of the board that the Delta product line has been making losses in several quarters over the last 5 years. Hence, the management wishes to consider the following two alternatives: Discontinue the 'Delta' product line to avoid the loss. Discontinue the 'Delta' product line and utilise the capacity to manufacture product 'Rho'. In this case, sales revenue from product 'Rho' is estimated to be $200,000 and the contribution margin ratio for 'Rho' is estimated to be at 35%. The fixed costs directly attributable to Rho would be the same as the fixed cost directly attributable to Delta. As an expert on cost analysis, you are approached by the CFO of Exclusive Ltd to conduct a detailed analysis of the two alternatives available for the management and to provide appropriate recommendations. Required (a) Determine the current product-wise and overall profitability for Exclusive Ltd by preparing a marginal costing income statement. (b) Evaluate the option (i) listed above in the case study and note down any observations based on your analysis. Show detailed calculations. (c) Evaluate alternative (ii) listed above in the case study and note down your observations based on your analysis and provide a final recommendation for the management of Exclusive Ltd as to which of the two alternatives would be most beneficial for the company. Support your recommendation with detailed calculations.

Answer rating: 100% (QA)

a Marginal Costing Income Statement Particulars Beta Gamma Delta Total Sales Revenue 100000000 80000000 20000000 200000000 Contribution Margin Ratio 4... View the full answer