Question

FCA Company“ produces and sells three products (A), (B) and (C).The following data and information are now accessible for the last year ended December 31, 2015:

	(A)	(B)	( C )
Sale Revenue ( in 1000’s LE )	1600	1,000	1250
Contribution margin per unit ( in LE )	24	20	5
Contribution margin ratio	30%	40%	20%
The total special fixed costs of the last year ( in 1000's LE)	200	150	300
The share of the total of the common committed fixed costs in last year( in 1000'sLE)	100	75	75

To plan for the next year, some alternative views are expressed as under:

The first view : Although product ( C ) showed last year   a net loss, it is recommended not to delete product ( C ) but to continue producing and selling the same three products without any changes from last year ended.

The Second View : Continue product ( C ) because studies indicated that deleting this product in the next year will decrease the sales quantities of each of the other products by 10% without any changes in selling prices , contribution margin ratio , special and common committed fixed costs of the last year and no alternative use of the vacated facilities of product ( C ) .

The Third View: Deleting products ( C ) and ( A ) and use the vacated facilities of these products to increase the sales quantities of product ( B ) to the maximum units of the local market demand of 50,000 units , without any changes in selling prices , contribution margin ratio , special and common committed fixed costs of the last year .

Required: Prepare the detailed income statement which is expected under each alternative view, then comment briefly on the decision rules involved therein. (Show the necessary supporting computations)

Answer 1

Solution is as follows: