Aston International Products Ltd manufactures four products A,B, C and D. The budget for...

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Accounting

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
$’000
$’000
$’000
$’000
$’000
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.
Explain to the company why orders for Product B should berejected even though it makes a positive contribution.
What could management do to ensure that the production and saleof Product B is profitable?
Do a summary budget for the company to show how profits would beimpacted if Product C alone was shut down from the mix.
Advise management on two (2) strategies that could be adopted toearn income if Product C was shut down from the mix.
What are differential costs.
Identify the relevant costs in the budget.

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3.8 Ratings (708 Votes)

1 Orders for product C should be rejected with immediate effect due to the following reasons Poduct C is having negative contribtuion margin which means this product is not able to cover its variable cost and expenses from its sales If the company keep making this product they will experiance losses Hence the order for Product C should be rejected immediately If the the order for Product C is discontinued then the company could use its freed up resources like machinery and employees for making additional units of another product which are more profitable or make a new product another purpose Could the company make additional units of another product or make a new product Assessing these alternatives helps the See Answer

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Transcribed Image Text

In: AccountingAston International Products Ltd manufactures four products A,B, C and D. The budget for the...Aston International Products Ltd manufactures four products A,B, C and D. The budget for the upcoming financial year is asfollows:DetailsABCDTotal$’000$’000$’000$’000$’000Direct materials20,00010,00012,00024,00066,000Direct labour6.0004,0007,0008,00025,000Variable overheads2,0001,0003,0006,00012,00028,00015,00022,00038,000103,000Sales50,00019,00018,00052,000139,000Contribution22,0004,000(4,000)14,00036,000Fixed costs(8,000)(6,000)(2,000)(7,000)(23,000)Profit/(loss)14,000(2,000)(6,000)7,00013,000Required:Give the company three (3) reasons why orders for Product Cshould be rejected with immediate effect. Explain to the company why orders for Product B should berejected even though it makes a positive contribution. What could management do to ensure that the production and saleof Product B is profitable? Do a summary budget for the company to show how profits would beimpacted if Product C alone was shut down from the mix. Advise management on two (2) strategies that could be adopted toearn income if Product C was shut down from the mix. What are differential costs. Identify the relevant costs in the budget.

Details	A	B	C	D	Total
	$’000	$’000	$’000	$’000	$’000
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