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 DEF products Ltd. As you can see from the table below the directors are considering closing products Bozon and Carbon 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 Use your knowledge of management accounting and marginal costing to calculate the contribution of each product Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Bozon Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Carbon Discuss how and why marginal costing calculates contribution to pay overheads and why this is useful in evaluating product value to a firm? Do you agree that profitability will improve by ceasing to make Products Bozon and Carbon? What do you suggest the company does to increase profitability? АхorBozonCarbonTotal(£m)(£m)(£m)(£m)Sales7,9205,2803,78016,980Cost of salesMaterials(2,520)(1,680)(1,680)(5,880)Labour(2,520)(2,520) (2,520)(7,560)Overheads(1,260)(1,260) (1,260)(3,780)Profit/(loss)1,620(180)(1,680)(240)

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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 DEF products Ltd.

As you can see from the table below the directors are considering closing products Bozon and Carbon 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

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

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

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

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

Do you agree that profitability will improve by ceasing to make Products Bozon and Carbon? What do you suggest the company does to increase profitability?

Ахor
Bozon
Carbon
Total
(£m)
(£m)
(£m)
(£m)
Sales
7,920
5,280
3,780
16,980
Cost of sales
Materials
(2,520)
(1,680)
(1,680)
(5,880)
Labour
(2,520)
(2,520) (2,520)
(7,560)
Overheads
(1,260)
(1,260) (1,260)
(3,780)
Profit/(loss)
1,620
(180)
(1,680)
(240)

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