Question 1 Jimmy Dog’s Designer manufactures a range of dog outfits but when the profit statement is produced there is concern that the product for ‘Summer coat’ is making a loss.

Hoodcoat Summer
coat Raincoat Winter coat Total
£ £ £ £ £
Sales 90,000 29,000 80,000 95,000 294,000
Total costs 50,000 35,000 45,000 50,000 180,000
Profit/(loss) 40,000 (6,000) 35,000 45,000 114,000

• Total costs include £35,000 which has been shared equally between the four products.

Required:

a. Using your knowledge of ‘Marginal Costing’ re-arrange the profit statement
to include ‘Contribution’.

b. Demonstrate the effect on profit if the production and sales of ‘Summer coat’ were stopped immediately.

c. From your results in a. and b. above, should the ‘Summer coat’ be dropped from production?

d. Other than the numeric conclusion, what other factors should be taken into consideration in the decision for the future of the ‘Summer coat’ production?