You are employed by Mobility Global (MG) as a Senior Management Accountant. Like other businesses, MG has

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Question:

You are employed by Mobility Global (MG) as a Senior Management Accountant. Like other businesses, MG has been exposed to challenges facing the UK including Brexit, COVID-19, The Russo-Ukranian War, UK Political Dynamic, Interest Rates and Inflation to name but a few. MG produces and sells three types of special personal mobility equipment directly to National Health Service (NHS) and Care Homes across the United Kingdom. MG’s profitability has been on a decline over the past years. Below is MG’s overall performance for the month of December 2022. In view of the huge capital investment made, MG’s directors are considering ways to improve this mediocre performance. Upon considering the data below in the Executive Committee Meeting, Clara Zoul the Operations Director and five other directors share the same understanding and view that production of Hoists and Mobile Beds must be stopped if profitability is to improve in 2023. Fixed overheads were apportioned based on the floor area occupied. You spot that marginal costing would show the results differently and may affect the directors’ decision.

Mobility Global’s Product Financial Performance Report for the month of December 2022

		Wheelchairs	Hoists	Mobile Beds	Total
Units sold		60	75	120
Turnover		33,600.00	47,250.00	56,400.00	137,250.00
Costs
	Direct Material	(7,728.00)	(25,042.50)	(27,636.00)	(60,406.50)
	Direct Labour	(5,712.00)	(14,647.50)	(14,100.00)	(34,459.50)
	Other Variable Expenses	(3,024.00)	(9,450.00)	(5,640.00)	(18,114.00)
	Fixed Overheads	(11,560.00)	(25,840.00)	(30,600.00)	(68,000.00)
Profit /(Loss)		5,576.00	(27,730.00)	(21,576.00)	(43,730.00)

Required:

Parndeep Kaur, the Finance Director is busy on some strategic forecasts and has requested you to prepare a report to MG’s directors concerning the proposal to cease Hoists and Mobile Beds production.

Using your knowledge of Management Accounting and Marginal Costing, clearly showing calculations and using appropriate, credible references, critically analyse Mobility Global’s product viability and the proposal to cease the production of Hoists and Mobile Beds. You are to:

Prepare a Marginal Costing Statement for each product and the total for the month of December 2021
Based on the contribution you calculated in part (a) above, advise if MG should stop the production of Hoists. Prepare a Marginal Costing Statement showing the results if MG stops making Hoists.
Based on the contribution you calculated in part (a) above, advise if MG should stop the production of Mobile Beds. Prepare a Marginal Costing Statement showing the results if MG stops making Mobile Beds
In addition to the calculations and your recommendations above (whether to cease production of Hoists and Mobile Beds), critically discuss the qualitative issues to be considered by Mobility Global’s board in making the decision.
Discuss how and why marginal costing calculates contribution to pay overheads and why this is useful in evaluating product value to a firm comparing it to Absorption Costing technique