A company manufactures three consumer durables, A, B, C, using the same set of machines. All the
Question:
A company manufactures three consumer durables, A, B, C, using the same set of machines. All the products have good demand. Production and sales for the year 2020 were as follows:
Products | |||
A | B | C | |
Sales (Units) | 2,000 | 3,000 | 4,000 |
Selling price (Rs./unit) | 420 | 350 | 320 |
Cost per unit (Rs.) | |||
Direct Materials | 140 | 130 | 120 |
Direct labour | 60 | 52 | 45 |
Applied Overheads | 64 | 56 | 47 |
Total Cost | 264 | 238 | 212 |
Profit per unit (Rs.) | 156 | 112 | 108 |
As product C is least profitable as per the above data, the management feels that it is better to discontinue its production and step up the production of A and B. The Production Manager and Marketing Manager are both agreed, that once one of the three limits is stopped, it is possible to double the production/sales of the remaining lines without any additional fixed cost or investment, subject only to the condition that the total number of units of different products is limited to 10,000 units per annum.
You are the Management Accountant of the company. You are asked to examine the case and make suitable recommendation, before the production plan is changed. During your examination you find that applied overheads for 2022 are made up of the following costs:
| A | B | C |
Variable Overhead | 36 | 32 | 15 |
Fixed Overhead | 28 | 24 | 32 |
64 | 56 | 47 |
Required:
Profit currently earned by the company and relative profitability of the products.
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen