Question 1 Diagnostics plc produces three pieces of specialist electronic equipment used in medical devices. You have been appointed as an accounting assistant on a training contract with the company. The management accountant is currently on leave. On your first day the managing director (MD) introduced herself and presented you with the following budgeted profit statements for the company's products for the first quarter of 2021. Product M1 М2 M3 Units 2,000 1,500 800 € € € Sales 1,280,000 1,050,000 720,000 Variable materials 560,000 340,000 80,000 480,000 Variable direct labour 160,000 240,000 890,000 300,000 1,100,000 115,000 535,000 (50,000) Production overhead 250,000 Profit/Loss 390,000 185,000 Production overhead for the period is expected to be €665,000 of which €450,000 is fixed and the remainder is expected to vary with volume. Fixed production overhead included in the statement above for each product, is as follows: M1 €150,000, M2 €225,000 мз €75,000. The MD is concerned at the projected losses being made on M2 and has called a meeting of the management team to discuss this and ways to improve the company's profitability. Having reviewed the budgeted profit statement above, you caution that it would be better to appraise the performance of the products based on their contributions rather than profit. Requirements (a) In the absence of the management accountant you have been invited to the meeting and asked to prepare the following in relation to the next quarter:
Question 1 Diagnostics plc produces three pieces of specialist electronic equipment used in medical devices. You have been appointed as an accounting assistant on a training contract with the company. The management accountant is currently on leave. On your first day the managing director (MD) introduced herself and presented you with the following budgeted profit statements for the company's products for the first quarter of 2021. Product M1 М2 M3 Units 2,000 1,500 800 € € € Sales 1,280,000 1,050,000 720,000 Variable materials 560,000 340,000 80,000 480,000 Variable direct labour 160,000 240,000 890,000 300,000 1,100,000 115,000 535,000 (50,000) Production overhead 250,000 Profit/Loss 390,000 185,000 Production overhead for the period is expected to be €665,000 of which €450,000 is fixed and the remainder is expected to vary with volume. Fixed production overhead included in the statement above for each product, is as follows: M1 €150,000, M2 €225,000 мз €75,000. The MD is concerned at the projected losses being made on M2 and has called a meeting of the management team to discuss this and ways to improve the company's profitability. Having reviewed the budgeted profit statement above, you caution that it would be better to appraise the performance of the products based on their contributions rather than profit. Requirements (a) In the absence of the management accountant you have been invited to the meeting and asked to prepare the following in relation to the next quarter:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Question 1
Diagnostics plc produces three pieces of specialist electronic equipment used in medical devices. You have
been appointed as an accounting assistant on a training contract with the company. The management
accountant is currently on leave. On your first day the managing director (MD) introduced herself and
presented you with the following budgeted profit statements for the company's products for the first quarter
of 2021.
Product
M1
M2
M3
Units
2,000
1,500
800
€
€
€
Sales
1,280,000
1,050,000
720,000
Variable materials
340,000
560,000
240,000
480,000
Variable direct labour
160,000
80,000
890,000 300,000 1,100,000 115,000 535,000
(50,000)
Production overhead
250,000
Profit/Loss
390,000
185,000
Production overhead for the period is expected to be €665,000 of which €450,000 is fixed and the remainder
is expected to vary with volume. Fixed production overhead included in the statement above for each
product, is as follows: M1 €150,000,
M2 €225,000
Мз €75,000.
The MD is concerned at the projected losses being made on M2 and has called a meeting of the management
team to discuss this and ways to improve the company's profitability. Having reviewed the budgeted profit
statement above, you caution that it would be better to appraise the performance of the products based on
their contributions rather than profit.
Requirements
(a) In the absence of the management accountant you have been invited to the meeting and asked to
prepare the following in relation to the next quarter:
(i) The total contributions earned on each product and their combined contribution.
(ii) The break-even sales revenue.
(iii) The percentage margin of safety.
(iv) Calculate the sales revenue that would be required to generate a profit of €650,000.
(v) Prepare a multiple product contribution sales chart to present to the management team.
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