Calculate the overall profit if the offer is accepted, Managerial Accounting

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Question :

(a) A company manufactures and sells two products A and B. Presently, it sells 600 units of A and 400 units of B at a price of £24 and £19 respectively. The unit cost structure of both A and B is :

1584_Calculate the overall profit if the offer is accepted.png

Total Factory overheads are absorbed on the basis of machine hours, which is the limiting factor. The machine hour rate is £2 per hour.

The company received an offer to sell product A at a price of £17.50 and product B at a price of £15.50. The company has a spare capacity of 25% and can supply either A or B. Calculate the overall profit if the offer is accepted.

(b) Explain the importance of Margin of Safety.


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