Company A manufactures two products A and B that sells for 120€ and 80€ respectively. Each product uses only one type of raw materials that costs 6€ per kilogram. The company has the capacity to annually produce 100000 units of each product. The company considers its traceable fixed mahufacturing overhead to be avoidable and its common fixed expenses are unavoidable and have been allocated to products based on sales in euros. Company's average cost per unit for each product at annual level of activity is provided in the table. Items Product costs in euro A B Direct materials 30 12 Direct labour 20 15 Variable manufacturing overhead 7 5 Traceable fixed manufacturing overhead 16 18 Variable selling expenses 12 8 Common fixed expenses 15 10 Total costs per unit 100 68 (Answer each question independently unless instructed otherwise) Assume that Company normally produces and sells 40000 units of product B per year. Evaluate, what is the financial advantage (disadvantage) of discontinuing the product B line. (Advantage express as postive number, disadvatage as negative (with minus sign))
Company A manufactures two products A and B that sells for 120€ and 80€ respectively. Each product uses only one type of raw materials that costs 6€ per kilogram. The company has the capacity to annually produce 100000 units of each product. The company considers its traceable fixed mahufacturing overhead to be avoidable and its common fixed expenses are unavoidable and have been allocated to products based on sales in euros. Company's average cost per unit for each product at annual level of activity is provided in the table. Items Product costs in euro A B Direct materials 30 12 Direct labour 20 15 Variable manufacturing overhead 7 5 Traceable fixed manufacturing overhead 16 18 Variable selling expenses 12 8 Common fixed expenses 15 10 Total costs per unit 100 68 (Answer each question independently unless instructed otherwise) Assume that Company normally produces and sells 40000 units of product B per year. Evaluate, what is the financial advantage (disadvantage) of discontinuing the product B line. (Advantage express as postive number, disadvatage as negative (with minus sign))
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Company A manufactures two products A and B that sells for 120€ and 80€ respectively. Each product uses only one type of raw materials that costs 6€ per kilogram. The company has the capacity to annually produce 100000 units of each product. The company considers its traceable fixed mahufacturing
| Items |
Product costs in euro
|
|
|
A
|
B
|
|
| Direct materials | 30 | 12 |
| Direct labour | 20 | 15 |
| Variable manufacturing overhead | 7 | 5 |
| Traceable fixed manufacturing overhead | 16 | 18 |
| Variable selling expenses | 12 | 8 |
| Common fixed expenses | 15 | 10 |
| Total costs per unit | 100 | 68 |
(Answer each question independently unless instructed otherwise)
Assume that Company normally produces and sells 40000 units of product B per year. Evaluate, what is the financial advantage (disadvantage) of discontinuing the product B line.
(Advantage express as postive number, disadvatage as negative (with minus sign))
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