Wanna manufacturing company sells the following three products:
X @ Rs. 8 per unit, Y @ Rs. 2 per unit and Z @ Rs. 3 per unit.
While product X contributes 20% its revenue in Fixed Cost and profit, product Y contributes 10% and product Z contributes 60%. The company earned a net profit of Rs. 50,000 last year by selling 50,000 units of X, 1,50,000 units of Y and 60,000 units of Z.
It is believed that the profit picture can be improved by eliminating product Y and concentrating the sales efforts on products X and Z. There is an opportunity to increase the sale of product X to 70,000 units, but product Z will probably be sold at the same volume next year.
As a Cost Accountant of the company, give your suggestion regarding the elimination of product Y.