Question 2 – A multi-product company The following table depicts the budgeted sales volume and unit costs and profits for an English manufacturer (Toys Ltd.) of two different children's toys, both of which are produced in the same factory: per Product A B Budgeted sales (units) 2500 3000 Sales price per unit Material 40 39 12 Labour 12 20 Variable overheads 5 4 Fixed overhead per unit 6 10 35 Total cost per unit Profit per unit 40 -1 (a) Calculate the contribution per unit and total contribution for each of the two products. Since product B is unprofitable, calculate its break-even output i.e. sales quantity. production? Explain and justify your answer. Should management discontinue its contribution per unit A: 40-12-12-5 = 11 B: 39-6-20-4 = 9 total contribution A: 11*2500 = 27 500 B: 9*3000 = 27 000 break-even output (B) FC=10*3 000 = 30 000 BEP= 30 000/9 = 3 333,33 units The BEP is below the budgeted sales volume, but they should still keep producing, because they have prositive contribution. The contribution is at 9 and the FC is at 10 so they almost cover all fixed cost. If they stop producing they would face even higher losses.

Question 2 – A multi-product company The following table depicts the budgeted sales volume and unit costs and profits for an English manufacturer (Toys Ltd.) of two different children's toys, both of which are produced in the same factory: per Product A B Budgeted sales (units) 2500 3000 Sales price per unit Material 40 39 12 Labour 12 20 Variable overheads 5 4 Fixed overhead per unit 6 10 35 Total cost per unit Profit per unit 40 -1 (a) Calculate the contribution per unit and total contribution for each of the two products. Since product B is unprofitable, calculate its break-even output i.e. sales quantity. production? Explain and justify your answer. Should management discontinue its contribution per unit A: 40-12-12-5 = 11 B: 39-6-20-4 = 9 total contribution A: 112500 = 27 500 B: 93000 = 27 000 break-even output (B) FC=10*3 000 = 30 000 BEP= 30 000/9 = 3 333,33 units The BEP is below the budgeted sales volume, but they should still keep producing, because they have prositive contribution. The contribution is at 9 and the FC is at 10 so they almost cover all fixed cost. If they stop producing they would face even higher losses.

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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