QUESTION 2 A:
You work for Zebra 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 ZA products Ltd.
From the table below the Board of Directors are considering halting the production of 2 of their products that appear to be making no profit.
You spot that marginal costing would show the results differently and may affect the directors’ decision.
|
|
|
Computer |
Ipad |
Laptop |
Total |
|
|
|
(£m) |
(£m) |
(£m) |
(£m) |
|
Sales |
|
15,623.00 |
8,543.00 |
9,849.00 |
34,015.00 |
|
|
|
|
|||
|
Cost of sale |
|
||||
|
|
Material |
-4,876.00 |
-4,344.00 |
-3,254.00 |
-12,474.00 |
|
|
Labour |
-5,125.20 |
-4,815.60 |
-5,216.40 |
-15,157.20 |
|
|
Overheads |
-2,234.00 |
-2,234.00 |
-2,234.00 |
-6,702.00 |
|
Profit /(Loss) |
|
3,387.80 |
-2,850.60 |
-855.40 |
-318.20 |
Requirements for Question 2 part (a)
i. 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 Laptop?
iii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making Ipad?
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 laptop and Ipad? What do you suggest the company does to increase profitability?
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