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.
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.
A concern manufacturing product x has provided the following
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
Fixed overhead Nil
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.
Tags : Accounting For Managers - Management Accounting-Marginal Costing
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