Monday, 8 July 2013
Learning Objectives: The students are expected to learn and apply the cost-volume-profit analysis.
Scenario:
Aini & Alex (Pvt.) Limited launched its fashion accessories in ladies’ purses few years back in Karachi with the aim to let them handle their necessities with comfort. Now, its brands are famous for stylish and affordable accessories.
Aini & Alex (Pvt.) Limited launched its fashion accessories in ladies’ purses few years back in Karachi with the aim to let them handle their necessities with comfort. Now, its brands are famous for stylish and affordable accessories.
At the start of new financial year, the sales manager of the Aini & Alex (Pvt) limited has to plan about future sales of its bags section, consisting of two product lines - leather handbags and clutch purses. To plan about future sales, the sales manager is in need of data about per unit cost and profit for each product line from the company’s accountant.
Accountant demonstrates the per unit data that shows currently the company is selling leather handbags at Rs. 300 per unit and clutch purse at Rs 190 per unit respectively. Other cost data is as follows:
Details
|
Leather Handbags
|
Clutch Purses
|
Rs. P/U
|
Rs. P/U
| |
Variable cost
|
130.00
|
110.00
|
Fixed cost
|
144.00
|
52.50
|
Profit
|
26.00
|
27.50
|
Considering the above mentioned information, answer the following:
a) Determine per unit contribution margin, contribution margin ratio for each of the product.
b) If the sales manager of Aini & Alex (Pvt.) Limited decides to increase production substantially any of the above two products (manufactured units are expected to be sold in the market), determine which product will be more profitable for the company to produce assuming that cost behavior pertains remain unchanged.
c) Support your answer in part (b) based on logical reason.
