Question

Group of companies produces a kind of household appliances. The fixed production costs  are 30,000 $annually, the variable production cost of the unit is 0.4, and the general administrative expenses are 8000$ .The company used to sell its production to wholesalers at 2$  per unit and achieve an annual sales figure of 50,000 Sales unit sees the sale to retailers directly as this will increase the sales volume by 10% per year and at the same time increase the selling price by 10% as well.

statement	Wholesalers	Retailers
Packing cost	5000	9000
Storage expenses	2000	2400
Commissions and salaries of men selling	2500	4800
Transfer expenses	400	1100
Advertising expenses	1800	3200
Consumption of sales offices	2000	5500
Salary of sales office managers	1700	3300
Collection expenses	300	2000
Bad debt	200	1300
Total	16900	32600

The general manager has opposed the idea of ​​selling to retailers as it will lead to double costs. I have hired you as the best management accountant for the company because of your vast experience in these matters and asked you to express an opinion on this matter

Answer 1

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Group of companies
	Wholesalers	Retailers
Sales units	50,000.00	55,000.00	10% increase.
Sales price	2.00	2.20	10% increase.
Variable production cost per unit	0.40	0.40
Contribution per unit	1.60	1.80
Contribution amount	80,000.00	99,000.00
Less:
Fixed production costs	30,000.00	30,000.00
General administrative expenses	8,000.00	8,000.00
Packing cost	5,000.00	9,000.00
Storage expenses	2,000.00	2,400.00
Commissions and salaries of men selling	2,500.00	4,800.00
Transfer expenses	400.00	1,100.00
Advertising expenses	1,800.00	3,200.00
Consumption of sales offices	2,000.00	5,500.00
Salary of sales office managers	1,700.00	3,300.00
Collection expenses	300.00	2,000.00
Bad debt	200.00	1,300.00
Net Profit	26,100.00	28,400.00
Net Profit increased by		2,300.00
Net Profit will increase by $ 2,300 if sold to retailers so proposal should be accepted.