A company manufactures four products from an input of a raw material to process 1. Following this process, product. A is processed in process 2, product B in process 3, product C in process 4 and product D in process 5.
The normal loss in process 1 is 10 per cent of input, and there are no expected losses in the other processes. Scrap value in process 1 is £0.50 per litre. The costs incurred in process 1 are apportioned to each product according to the volume of output of each product. Production overhead is absorbed as a percentage of direct wages.
Data in respect of the month of October:

You are required to:
(a) Calculate the profit or loss for each product for the month, assuming all output is sold at the normal selling price;
(b) Suggest and evaluate an alternative production strategy which would optimize profit for the month. It should not be assumed that the output of process 1 can be changed;
(c) Suggest to what management should devote its attention, if it is to achieve the potential benefit indicated in (b).

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5 Total (E000) (E000) (E000) (E000) (E000) (£000) Direct materials at £1.25 per litre Direct wages Production overhead 100 48 12 8 16 22000 4.00 18000 5.00 Output (litres) Selling price (E) Estimated sales alue at end of Process 1(E) 3.00 2.00 2.50 3.00