Gandhi Ltd renders a promotional service to small retailing businesses. There are three levels ofservice: the 'Basic', the 'Standard' and the 'Comprehensive'. The business plans next year towork at absolute full production capacity. Managers believe that the market will not accept moreof any of the three services at the planned prices. The plans are:ServiceBasicStandardComprehensiveSelling price per unitVariable cost per unitNumber of units ofthe serviceFixed cost per unitLoss11,0006,00016,000Sellingprice££80(65)(20)(5)5080120The business's fixed cost totals £660,000 a year. Each service takes about the same lengthof time, irrespective of the level.One of the accounts staff has just produced a report that seems to show that the Standardservice is unprofitable. The relevant extract from the report is as follows:Standard service cost analysisVariable costper unit£256590(£660,000/(11,000+ 6,000 + 16,000))The writer of the report suggests that the business should not offer the Standard service nextyear. The report goes on to suggest that, if the price of the Basic service were to be lowered, themarket could be expanded.Required:(a) Should the Standard service be offered next year, assuming that the quantity of the otherservices could not be expanded to use the spare capacity?(b) Should the Standard service be offered next year, assuming that the released capacity couldbe used to render a new service, the 'Nova', for which customers would be charged £75 perunit, and which would have a variable cost of £50 per unit and take twice as long per unit aseach the other three services?(c) What is the minimum price that could be accepted for the Basic service, assuming that thenecessary capacity to expand it will come only from not offering the Standard service?

Contribution per unit is a financial metric used in accounting to measure the profitability of a…

Gandhi Ltd renders a promotional service to small retailing businesses. There are three levels of service: the 'Basic', the 'Standard' and the 'Comprehensive'. The business plans next year to work at absolute full production capacity. Managers believe that the market will not accept more of any of the three services at the planned prices. The plans are: Service Basic Standard Comprehensive Number of units of the service 11,000 6,000 16,000 Selling price £ 50 80 120 Variable cost per unit £ 25 65 90 The business's fixed cost totals £660,000 a year. Each service takes about the same length of time, irrespective of the level. One of the accounts staff has just produced a report that seems to show that the Standard service is unprofitable. The relevant extract from the report is as follows:

Gandhi Ltd renders a promotional service to small retailing businesses. There are three levels of service: the 'Basic', the 'Standard' and the 'Comprehensive'. The business plans next year to work at absolute full production capacity. Managers believe that the market will not accept more of any of the three services at the planned prices. The plans are: Service Basic Standard Comprehensive Number of units of the service 11,000 6,000 16,000 Selling price £ 50 80 120 Variable cost per unit £ 25 65 90 The business's fixed cost totals £660,000 a year. Each service takes about the same length of time, irrespective of the level. One of the accounts staff has just produced a report that seems to show that the Standard service is unprofitable. The relevant extract from the report is as follows:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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