Lever Brothers Limited produces following products and is studying the profitability of its product line. Following...

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Lever Brothers Limited produces following products and is studying the profitability of its product line. Following data is given to you about the firm for the coming year: Product Sales in units Revenue Costs: Material Labour Overheads Total cost Profit/ (Loss) X 100,000 Rs. 1,500,00 Y 120,000 Rs. 1,440,000 500,000 400,000 320,000 Z 80,000 Rs. 880,000 480,000 240,000 160,000 i. Original budget ii. If product A is deleted. 650,000 600,000 360,000 1,550,000 1,400,000 760.000 (50,000) 40,000 120,000 Chief Executive Officer of the company is concerned about the loss on product X he is considering ceasing production of it and switching the spare capacity of 100,000 units to product Z. Following additional information is also available: 1. Units produced are sold. 2. 25 percent of the labour cost for each product is fixed in nature. 3. Fixed administration overheads of Rs.900,000 in total have been apportioned to each product based on units sold and are included to the overhead costs above. All other overhead costs are variable in nature. 4. Ceasing production of product. X would eliminate the fixed labour charge associated with it and one sixth of the fixed administration overhead apportioned to product X. 5. Increasing the production of product Z by 100,000 units would mean that the fixed labour cost associated with product Z would double, the variable labour cost would raise by 20 percent and its selling price would have to be decreased by Rs.1.50 to achieve the increase sales. Required: a. What is marginal cost per unit of each product based on: i. Original budget ii. If product A is deleted. b. Prepare a statement showing the total contribution and profit for each product based on: c. Advice whether product A should be deleted from the product range, giving reasons for your decision using your results from (a) and (b). (Total Marks 20) Lever Brothers Limited produces following products and is studying the profitability of its product line. Following data is given to you about the firm for the coming year: Product Sales in units Revenue Costs: Material Labour Overheads Total cost Profit/ (Loss) X 100,000 Rs. 1,500,00 Y 120,000 Rs. 1,440,000 500,000 400,000 320,000 Z 80,000 Rs. 880,000 480,000 240,000 160,000 i. Original budget ii. If product A is deleted. 650,000 600,000 360,000 1,550,000 1,400,000 760.000 (50,000) 40,000 120,000 Chief Executive Officer of the company is concerned about the loss on product X he is considering ceasing production of it and switching the spare capacity of 100,000 units to product Z. Following additional information is also available: 1. Units produced are sold. 2. 25 percent of the labour cost for each product is fixed in nature. 3. Fixed administration overheads of Rs.900,000 in total have been apportioned to each product based on units sold and are included to the overhead costs above. All other overhead costs are variable in nature. 4. Ceasing production of product. X would eliminate the fixed labour charge associated with it and one sixth of the fixed administration overhead apportioned to product X. 5. Increasing the production of product Z by 100,000 units would mean that the fixed labour cost associated with product Z would double, the variable labour cost would raise by 20 percent and its selling price would have to be decreased by Rs.1.50 to achieve the increase sales. Required: a. What is marginal cost per unit of each product based on: i. Original budget ii. If product A is deleted. b. Prepare a statement showing the total contribution and profit for each product based on: c. Advice whether product A should be deleted from the product range, giving reasons for your decision using your results from (a) and (b). (Total Marks 20)

Answer rating: 100% (QA)

To solve this problem lets calculate the marginal cost per unit for each product based on the original budget and if product X is deleted a Marginal cost per unit i Original budget To calculate the ma... View the full answer