- 15 Marks
PM – May 2022 – L2 – SA – Q1A – Costing Systems and Techniques
Budgeted contribution, effect of product discontinuation, and sales to cover extra costs.
Question
You are the Management Accountant of Dankoli Nigeria Limited, which specializes in the production of three products: Product 1, Product 2, and Product 3.
The following information is available for the first quarter of 2021:
| Particulars | Product 1 | Product 2 | Product 3 |
|---|---|---|---|
| Sales units (’000) | 225 | 376 | 190 |
| Selling Price per unit | N15.00 | N13.00 | N10.00 |
| Variable costs per unit | N7.80 | N6.00 | N5.00 |
| Attributable fixed costs | N275,000 | N337,000 | N296,000 |
General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed overhead is N1,668,000.
Required:
- Calculate the budgeted contribution and profit of the Products and Company. (5 Marks)
- Calculate the budgeted profits assuming that Product 3 is discontinued with no effect on sales of the other products. (5 Marks)
- Calculate the extra sales in units and value required to cover the additional cost of advertising of N80,000 if such cost is treated as general fixed overhead. (5 Marks)
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