Q1 A company is making a study of the relative profitability of the two products-A...
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Accounting
Q1 A company is making a study of the relative profitability of the two products-A and B. In addition to direct costs, indirect selling and distribution costs to be allocated between the two products are as under: Insurance charges for inventory (finished) $78,000; Storage costs $1,40,000; Packing and forwarding charges $ 7,20,000 ; Salesmen salaries $ 8,50,000; Invoicing costs $ 4,50,000. Other details are : Product A Product B Selling price per unit ($) 500 1,000 Cost per unit (exclusive of indirect selling and distribution cost) ($) 300 600 Annual sales in units 10,000 8,000 Average inventory (units) 1,000 800 Number of invoices 2,500 2,000 One unit of product A requires a storage space twice as much as product B. The cost to pack and forward one unit is the same for both the products. Salesmen are paid salary plus commission @ 5% on sales and equal amount of efforts are put forth on the sales of each of the products. Required: (i) Set up a schedule showing the apportionment of the indirect selling and distribution costs between the two products, (ii) Prepare a statement showing the relative profitability of the two products
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