Do You Recommend Adding Product P2 Or P1?

Preparing a segmented income statement for various situations assists management in determining the approximated financial impact of making one choice over another. It is expected that you understand how costs behave and that you will be familiar with the contribution margin idea. This full case expands on these ideas by analyzing different kinds of set costs.

The company we are looking at in this module makes two products and is considering adding one more since the company has unwanted capacity. One aspect of earning this decision is to screen the various scenarios to look for the potential profitability. Financial information does not tell us what to do only, but it is an excellent start.

TYZ Company presently produces two products, Y and Z. The business has the capacity to make one additional product, with two (P1 and P2) currently in mind. The forecasted annual sales and related costs for every “new” product are as follows. See below for the income statement for last year’s functions for TYZ Company. Common fixed costs are assigned to each products based on sales revenues. Prepare a adjustable costing income statement that includes products Y, Z, and P1. Repeat for products Y, Z, and P2.

What if P2’s variable production costs were reduced to 55% of sales? Prepare another adjustable costing income declaration to show the change. Suppose that you could add both P2 and P1, if either Y or Z is dropped. Can you drop one of the current products to add both P1 and P2?

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Show computations in Excel that will support a written answer in the memo. Analyze the computations in Excel and measure the three related proposals before making a recommendation. Do you recommend adding product P2 or P1? Do the low production costs change your recommendation? See question 3 above. Which of the merchandise looks the most profitable?

Assuming no restraint on customer demand or resources, which product would you choose in order to increase profitability? Think about qualitative, as opposed to quantitative, concerns? Write a 4- or 5-paragraph memo to who owns the business. Start with an introduction and end with a recommendation. Each one of the 4 or 5 paragraphs should have a heading. Short essay (use Word).

Read the backdrop information and do additional research as needed to comment on the next topics. Discuss the need for understanding the difference between your contribution margin and segment margin for purposes of earning business decisions. Discuss and offer good examples for complimentary and substitution effects when determining product mix. Start with an launch and end with a summary or summary.

Use headings and include proper sources. Maximum amount of two pages. Each submission will include two data files: (1) An Excel document; and (2) A Word document. THE TERM record shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.

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