A company is making a study of the relative profit-ability of the two products A and B in addition to direct costs, indirect selling and distribution costs to be allocated between the two products, which are provided as follows:
|
Insurance coverage for inventory (finished) |
78,000 |
|
Storage costs |
1,40,000 |
|
Packing and forwarding charges |
7,20,000 |
|
Salesman salaries |
8,50,000 |
|
Invoicing costs |
4,50,000 |
Other details are given here:
|
Product A |
Product B |
|
|
Selling price per unit (Rs.) |
500 |
1,000 |
|
Cost per unit (inclusive of indirect selling & distribution costs) |
300 |
600 |
|
Annual sales (in units) |
10,000 |
8,000 |
|
Average inventory (units) |
1,000 |
800 |
|
Number of Invoices |
2,500 |
2,000 |
One of the product A requires a storage space twice as much as product B. The cost of packing and forward one unit is the same for both the products. Salesmen are paid salary plus commission @ 5 per cent on sales and equal ammount of efforts are put forth on the sales of each of the products
Required: (1) Set up a schedule showing the apportionment of indirect selling and distribution costs between the two products. (2) Prepare a statement showing the relative profitability of the two products