ABC crop, makes three products and is reviewing the profitability of its product
ID: 2482190 • Letter: A
Question
ABC crop, makes three products and is reviewing the profitability of its product line. You are given the following budgeted data about the firm for the coming year The company is concerned about the loss on the product c. It is considering to cease its production and produce additional 60, 000 units of products B and additional 20, 000 units of products A instead You are also given the following information all production is sold All material cists are variable 40% of labor costs for each products is fixed in nature 60% of overhead costs are variable ceasing production c would eliminate the fixed labor charge associated with it Increasing the production of product B by 60, 000 would mean that the fixed labor cost associated with product B would rise by 20%, the variable overhead cost would rise by 40% and its selling price would have to be decreased by $2 in order to achieve the increased sales The price of product should be decreased by $1 prepare a contribution income statement on the basis of original budget if product c is deleted decide if it's necessary to drop product cExplanation / Answer
Its better to follow the original busget
A) Original Budget Particulars Product A Product B Product C Total Sale 2400000 1800000 720000 4920000 Less Cost Material 400000 350000 300000 1050000 Labor Variable 60% 300000 240000 108000 648000 Labor fixed 40% 200000 160000 72000 432000 Overhead Variable 60% 420000 360000 240000 1020000 Overhead fixed 40% 280000 240000 160000 680000 Profit / (Loss) 800000 450000 -160000 1090000