Question 2 A

Requirements

You work for Alphabet Holdings Plc as a junior management accountant.

The board of directors are considering ways to improve the suboptimal performance of an investment in a manufacturing company called AC products Ltd.

As you can see from the table below the directors are considering closing products gold and platinum in an effort to improve overall profitability.

You spot that marginal costing would show the results differently and may affect the directors’ decision.

Requirements for Question 2 

i. Use your knowledge of management accounting and marginal costing to calculate the contribution of each product

ii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product gold.

iii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Platinum.

iv. Discuss how and why marginal costing calculates contribution to pay overheads and why this is useful in evaluating product value to a firm?

v. Do you agree that profitability will improve by ceasing to make Products gold and platinum? What do you suggest the company does to increase profitability?