Tsunamy Ltd. is a leading home appliances manufacturer. The company uses just-in-time manufacturing processes and holds no inventory. Manufacturing is done in batches of 150 units each which cannot be altered without significant cost implications. Although the products are produced in batches of 150 units, they are sold as single units at the market price. Due to fierce competition in the market, the company is forced to follow market price for each product. The following table provides the financial results of its four unique products.

Particulars	Alpha	Beta	Gamma	Theta	Total
Units sold	210,000	250,000	260,000	250,000
Revenue	$2,730,000	$4,625,000	$3,900,000	$3,250,000	$14,505,000
Less: Material cost	$600,000	$1,820,000	$1,880,000	$1,000,000	$5,300,000
Less: Labour cost	$800,000	$2,080,000	$1,280,000	$1,200,000	$5,360,000
Less: Overheads	$800,000	$780,000	$320,000	$1,200,000	$3,100,000
Operating profit / (loss)	$530,000	($55,000)	$420,000	($150,000)	$745,000

Since the company is concerned about loss in manufacturing and selling of two products, it has approached you to get a clear picture on its products and costs. You have conducted a detailed analysis whose findings are below:

The overhead absorption rate of $2 per machine hour has been used to allocate overheads into the above product costs. Further analysis of the overhead cost shows that some of it is

caused by the number of machine hours used, some is caused by the number of batches produced and some are product specific fixed overheads that would be avoided if the product were discontinued. Other general fixed overhead costs would be avoided only by the closure of the factory. Numeric details are summarised below:

Particulars	Amount ($)	Amount ($)
Machine hour related overheads		620,000
Batch related overheads		460,000
Product specific fixed overheads:
• Alpha	500,000
• Beta	600,000
• Gamma	100,000
• Theta	220,000	1,420,000
General fixed overheads		600,000
Total		3,100,000

The other relevant information is as follows:

Particulars	Alpha	Beta	Gamma	Theta	Total
Machine hours	420,000	370,000	150,000	610,000	1,550,000
Labour hours	100,000	260,000	160,000	150,000	670,000

Required:

(a) Prepare a profitability statement that is more useful for decision making than the profit statement prepared by Tsunamy Ltd. 

(b) Calculate the break-even volume in batches and also in approximate units for each of the four products.

Answer rating: 100% (QA)

a Profitability Statement of Tsunamy ed BUILDWELL Revenue less Material Cabou... View the full answer