Montrose Glass Products Ltd manufactures three ranges of high-quality paperweights – Basic, Standard and Deluxe. Its accountant has prepared a draft budget for Year 7:

Fixed overheads are allocated to each product line on the basis of direct labour hours. The directors are concerned about the viability of the company and are currently considering the cessation of both Basic and Standard ranges, since both are apparently making losses.

Required

(a). If the directors close down only the manufacture of Basic paperweights, what is the effect on total profit?

(b). If the directors close down only the manufacture of Standard paperweights, what is the effect on total profit?

(c). What is the best decision with regard to keeping profit as high as possible?

Transcribed Image Text:

Basic Standard Deluxe Total £000s £000s £000s £000s Revenue 45 35 10 40 120 Material 15 10 35 Labour 20 15 40 Variable overhead 5 12 22 Fixed overhead 5 6 20 49 42 26 117 Profit/(loss) (4) (7) 14