Essay about Katy Eh Manufactoring Company

1563 Words Dec 22nd, 2015 7 Pages
Katy EH Manufacturing Company | ASSIGNMENT | Evaluation of Business Plans, Budgeting and Variance Analysis | | Algernon Jones | 05-Dec-15 |

Katy EH Manufacturing Company

INTODUCTION:
This study was conducted to evaluate various business plans of Katy EH Manufacturing Company and their impact on profit before tax, preparation of budget as per selected option and investigation of variances of operating budget of year 2016.

Answer Part (a):
To decide whether product line Grill A be dropped or not by Katy EH we will calculate contribution margin from Grill A. If the contribution margin becomes zero then we will suggest dropping the said product line otherwise not depending on other non-financial factors.

Calculation of
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However, the impact on profit before tax is negative by $ 100,000 (Solution part-e) Answer Part (c)

Contribution of 10,000 Units of Grill C | | Revenue | 10,000 x 80 | $ 800,000 | Less: Relevant Cost: | | | Direct Material | 10,000 x 7 | 70,000 | Direct Labour | 10,000 x 4 | 40,000 | Supplies | 10,000 x 1 | 10,000 | Indirect Labour | 10,000 x 4 x 50% | 20,000 | Energy | 10,000 x 4 x 50% | 20,000 | Total Relevant Cost | | (160,000) | Contribution Margin | | 640,000 | | | | Contribution of 10,000 Units of Grill A | | Revenue | 10,000 x 150 | $ 1,500,000 | Less: Relevant Cost: | | | Direct Material | 10000 x 17 | 170,000 | Direct Labour | 10000 x 21 | 210,000 | Supplies | 10000 x 7 | 70,000 | Indirect Labour | 10000 x 10 x 50% | 50,000 | Energy | 10000 x 12 x 50% | 20,000 | | | (520,000) | Contribution Margin | | 980,000 | | | | Contribution Analysis: | | $ | Increase in contribution by 10,000 units of Grill C | 640,000 | Decrease in contribution of 10,000 units of Grill A | (980,000) | Net Loss in contribution | | (340,000) |

Decision:
This option is not worthwhile because it reduces the contribution by $

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