Explain the main reason for the change you propose in (c) (i) above calculate the increase/decrease in operating profit for the company if the fixed-wing drones were discontinued.
Management accounting and international finance
In the context of ‘Vision 2027’, the new management is considering purchase of environmentally friendly equipment. Based on the information given in Appendix Q1.1, answer the following questions.
Table 1: Operating statement
| Drones | |||||
| Total | Fixed-wing | Fixed-wing hybrid | Multi-rotor | ||
| £ | £ | £ | £ | ||
| Sales | 845,000 | 180,000 | 420,000 | 245,000 | |
| Less: variable expenses | 354,000 | 93,000 | 160,000 | 101,000 | |
| Contribution | 491,000 | 87,000 | 260,000 | 144,000 | |
| Less: fixed overheads | |||||
| Marketing | 102,000 | 18,000 | 58,000 | 26,000 | |
| Deprecation of equipment | 116,000 | 36,000 | 48,000 | 32,000 | |
| Line supervisors’ salaries | 34,000 | 11,000 | 12,000 | 11,000 | |
| Factory overheads | 169,000 | 36,000 | 84,000 | 49,000 | |
| Total fixed overheads | 421,000 | 101,000 | 202,000 | 118,000 | |
a.Using the information in Table 1, and your knowledge of relevant costs, calculate the increase/decrease in operating profit for the company if the fixed-wing drones were discontinued.
b.For each of the four fixed overheads, give a reason why you decided in (a) that the overhead is relevant or irrelevant.
c.Based on your analysis of relevant and non-relevant costs:
i.Amend the operating statement in Table 1 to provide the total profitability of the drones as well as the profitability of each drone.
ii.Explain the main reason for the change you propose in (c) (i) above.