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Introduction Of A New Product-Application Of Marginal Costing
Accounting For Managers - Management Accounting-Marginal Costing
Introduction Of A New Product-Application Of Marginal Costing
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Sometimes, a product may be added to the existing lines of products with a view to utilise idle facilities, to capture a new market or for any other purpose.
1. Introduction
Of A New Product
Sometimes, a product may be added to the existing lines of products with a view to utilise idle facilities, to capture a new market or for any other purpose. The profitability of this new product has to be found out initially. Usually, the new product will be manufactured if it is capable of contributing something toward fixed costs and profit after meeting its variable costs.
Illustration 5:
A concern manufacturing product x has provided the following information:
In order to increase its sales by rs.25,000, the concern wants to introduce the product y, and estimates the costs in connection therewith as under:
Fixed overhead Nil
Sometimes, a product may be added to the existing lines of products with a view to utilise idle facilities, to capture a new market or for any other purpose. The profitability of this new product has to be found out initially. Usually, the new product will be manufactured if it is capable of contributing something toward fixed costs and profit after meeting its variable costs.
Illustration 5:
A concern manufacturing product x has provided the following information:
Rs. | |
Sales | 75,000 |
Direct
materials | 30,000 |
Direct
labour | 10,000 |
Variable
overhead | 10,000 |
Fixed
overhead | 15,000 |
In order to increase its sales by rs.25,000, the concern wants to introduce the product y, and estimates the costs in connection therewith as under:
Direct
materials | 10,000 |
Direct
labour | 8,000 |
Variable
overhead | 5,000 |
Advise whether the product Y will be profitable or
not.
Solution:
Commentary: if product Y is introduced, the profitability of product X is not affected in any manner. On the other hand, product Y provides a contribution of Rs.2,000 Towards fixed cost and profit. Therefore, Y should be introduced.
Solution:
Commentary: if product Y is introduced, the profitability of product X is not affected in any manner. On the other hand, product Y provides a contribution of Rs.2,000 Towards fixed cost and profit. Therefore, Y should be introduced.
Tags : Accounting For Managers - Management Accounting-Marginal Costing
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