Advice in relation to disagreement within management team

Assignment Help Managerial Accounting
Reference no: EM1389890

Process Solutions provides a computer-based document processing service. The accountant has produced the following analysis.

 

Standard

Modified

Advanced

Sales quantity

1,000

1,100

1,200

Selling price

£5

£5

£6

Sales revenue

5,000

5,500

7,200

Labour hours

100

120

160

Labour cost @ £20/hour

2,000

2,400

3,200

Contribution

3,000

3,100

4,000

Contribution per unit sold

£3

£2.82

£3.33

The Sales Manager, whose team is paid a commission on sales revenue prefers to sell the higher priced Advanced service. This is also the preferred service for the Accountant, although not for the same reason, as her argument is that the Advanced service is better because of the higher contribution per unit sold. The Operations Manager argues that the Advanced Service consumes more labour hours than the Standard or Modified services and as labour availability limits his ability to process work, this should also be taken into account. The Operations Manager prefers the Standard or Modified service as this provides greater ability to use his capacity more flexibly.

The General Manager has asked for your advice in relation to this disagreement within the management team.

Reference no: EM1389890

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