Part C (Southland plc)

Total for Part C(40%)

Southland plc is specialised in producing and selling of washing machines. In 2017, the manufacturing cost per unit included:

Direct material200

Direct labour (30 minutes per unit)90/hour

Variable manufacturing overhead30

Variable selling expenses50

Variable administrative expenses10

Fixed costs for the year ended 31 December 2017 were:

£’000

Fixed manufacturing1,500

Fixed selling and distribution1,700

Fixed administrative800

The company produced and sold 275,000 units at £400 per unit.

In 2018, management has decided to increase the selling price by 15% and to maintain the same contribution margin ratio as last year. This increase in price is to meet an increase of £2,440,000 in fixed costs in 2018. The company has produced and sold the same quantity in 2018 as last year.