Question

The information below was extracted from the books of Battle Field Ltd for the year ended December 31, 2019. Battle Field Ltd. Condensed Income Statement For the Year Ended December 31, 2019 Sardines GHS Tuna Flakes GHS Oatmeal GHS Total GHS Sales 500,000 400,000 100,000 1,000,000 Costs of goods sold: Variable costs Fixed costs 220,000 120,000 200,000 80,000 60,000 20,000 480,000 220,000 Total cost of goods sold 340,000 280,000 80,000 700,000 Gross profit 160,000 120,000 20,000 300,000 Operating expenses: Variable expenses Fixed expenses 95,000 25,000 60,000 20,000 25,000 6,000 180,000 51,000 Total operating expenses 120,000 80,000 31,000 231,000 Income (loss) from operations 40,000 40,000 (11,000) 69,000 Management is contemplating on whether or not to discontinue Oatmeal. Required: a. Advise management whether or not to discontinue Oatmeal and support your answer with calculations depicting the contribution derived from Oatmeal and the effect of discontinuing oatmeal on overall profits of battle field Limited. b. Most Management decisions are affected by the nature, purpose and behavior of costs. You have been tasked by the management of battlefield Limited to educate the staff of its Accounts department on the effects of the various classifications of costs on their decisions. Prepare your notes for this presentation. (Total 18 marks

Answer 1