Aston International Products Ltd manufactures four products A,B, C and D. The budget for the upcoming financial year is asfollows:
Details
A
B
C
D
Total
$â000
$â000
$â000
$â000
$â000
Direct materials
20,000
10,000
12,000
24,000
66,000
Direct labour
6.000
4,000
7,000
8,000
25,000
Variable overheads
2,000
1,000
3,000
6,000
12,000
28,000
15,000
22,000
38,000
103,000
Sales
50,000
19,000
18,000
52,000
139,000
Contribution
22,000
4,000
(4,000)
14,000
36,000
Fixed costs
(8,000)
(6,000)
(2,000)
(7,000)
(23,000)
Profit/(loss)
14,000
(2,000)
(6,000)
7,000
13,000
Required:
Give the company three (3) reasons why orders for Product Cshould be rejected with immediate effect. (3 marks)
Explain to the company why orders for Product B should berejected even though it makes a positive contribution. (3marks)
What could management do to ensure that the production and saleof Product B is profitable? (3 marks)
Do a summary budget for the company to show how profits would beimpacted if Product C alone was shut down from the mix. (8marks)
Advise management on two (2) strategies that could be adopted toearn income if Product C was shut down from the mix. (4 marks)
What are differential costs. (2 marks)
Identify the relevant costs in the budget. (2 marks)
Aston International Products Ltd manufactures four products A,B, C and D. The budget for the upcoming financial year is asfollows:
Details | A | B | C | D | Total |
$â000 | $â000 | $â000 | $â000 | $â000 | |
Direct materials | 20,000 | 10,000 | 12,000 | 24,000 | 66,000 |
Direct labour | 6.000 | 4,000 | 7,000 | 8,000 | 25,000 |
Variable overheads | 2,000 | 1,000 | 3,000 | 6,000 | 12,000 |
28,000 | 15,000 | 22,000 | 38,000 | 103,000 | |
Sales | 50,000 | 19,000 | 18,000 | 52,000 | 139,000 |
Contribution | 22,000 | 4,000 | (4,000) | 14,000 | 36,000 |
Fixed costs | (8,000) | (6,000) | (2,000) | (7,000) | (23,000) |
Profit/(loss) | 14,000 | (2,000) | (6,000) | 7,000 | 13,000 |
Required:
Give the company three (3) reasons why orders for Product Cshould be rejected with immediate effect. (3 marks)
Explain to the company why orders for Product B should berejected even though it makes a positive contribution. (3marks)
What could management do to ensure that the production and saleof Product B is profitable? (3 marks)
Do a summary budget for the company to show how profits would beimpacted if Product C alone was shut down from the mix. (8marks)
Advise management on two (2) strategies that could be adopted toearn income if Product C was shut down from the mix. (4 marks)
What are differential costs. (2 marks)
Identify the relevant costs in the budget. (2 marks)
