- 15 Marks
PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-
Determine the most profitable product mix for Markus Limited, and prepare a profitability statement for the optimal product mix.
Question
Markus Limited manufactures three products and operates a marginal costing system.
The following information has been extracted from the company’s records:
| Products | X | Y | Z |
|---|---|---|---|
| Units budgeted to be produced and sold | 3,600 | 6,000 | 3,400 |
| Selling Price (₦) | 120 | 110 | 100 |
| Requirement per Unit: | |||
| Direct Material (kg) | 5 | 3 | 4 |
| Direct Labour (Hours) | 4 | 3 | 2 |
| Direct Labour Hour rate (₦) | 4 | 4 | 4 |
| Direct Material Cost per Kg (₦) | 8 | 8 | 8 |
| Variable Overheads (₦) | 14 | 26 | 16 |
| Fixed Overheads (₦) | 20 | 20 | 20 |
| Maximum possible sales (units) | 8,000 | 10,000 | 3,000 |
All the three products are produced from the same direct material using the same types of machine and labour. Direct labour, which is the key factor, is limited to 37,200 hours.
Required: a. Determine the most profitable product mix. (6 Marks)
b. Prepare a statement of profitability for the product mix. (9 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Contribution analysis, Marginal Costing, Product Mix, Profitability
- Level: Level 2
- Topic: Costing Systems and Techniques
- Series: MAY 2015
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