Analysis of Profit Statement for Jimmy Dog’s Designer
Questions:
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?
Final answer: a) H^2O b) (2^2) H c) H_2O d) 2H
Answers:
To include 'Contribution' in the profit statement, calculate the contribution for each product by subtracting the variable costs from the sales. To determine the effect on profit, calculate the profit before and after excluding the 'Summer coat' from the profit statement. Consider other factors like market demand and production costs in deciding the future of the 'Summer coat'.
Explanation:
To rearrange the profit statement to include 'Contribution', we need to calculate the Contribution for each product. The Contribution is calculated as the Sales minus the Variable Costs. In this case, we need to subtract the Variable Costs from the Sales of each product. For example:
Contribution for Summer coat = Sales for Summer coat - Variable Costs for Summer coat
To demonstrate the effect on profit if the production and sales of 'Summer coat' were stopped immediately, we need to calculate the profit before and after excluding the 'Summer coat' from the profit statement. By subtracting the Total Costs (including the shared costs) from the Total Sales, we can find the profit. Finally, we compare the profit before and after excluding the 'Summer coat'. If the profit decreases significantly after excluding the 'Summer coat', it may indicate that dropping the 'Summer coat' from production is not a good decision.
Other than the numeric conclusion, other factors that should be taken into consideration in the decision for the future of the 'Summer coat' production include market demand, customer preferences, competition, production costs, and potential for future growth. It's important to analyze the market trends, customer feedback, and the overall profitability of the product to make an informed decision.