Financial Accounting Business Report Essay

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Report On Product Costing For Dumbellow Ltd

1. Introduction This report examines various proposals raised by different managers of Dumbellow Ltd. The major issue addressed by these proposals is “how to deal with product Z which is currently resulting in losses and thus pulling down the net profit of the entire product line”. The financial controller proposed a termination of the production of the product while the marketing manager suggested a £1 per unit reduction in the price so as to increase the demand of the product. On the other hand, the managing director thought that a 10% increase in both sales and activity across the board would make a difference.
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This calculated profit can be reliably achieved. On the other hand, businesses using marginal costing sets their prices by estimating the highest customer will pay, competitor’s prices and market prices are also considered. This price is designed to cover the marginal costs and is relatively lower. It is expected that lower prices would stimulate demand, maximize profits or increase the market share. A similar case, applies to production volume; in marginal costing, higher volumes of production are set due it the expected increase in demand stimulated by lower prices. All these are speculations which are risky but have worked for most companies. Marginal costing may not be sustainable in the long-run because fixed costs will have to be recovered by the firm. It is also worth noting that this method can make the consumers to continually expect lower prices thus making it difficult to raise prices again. This would impact negatively on the profitability of firms during financial bloom or even when the firm wants to recover its fixed costs. However, it works well during financial crises since the firm that uses marginal cost will remain competitive in terms of low prices.
Proposals are the strategies that were raised by the Financial Controller, the Production Manager, the Marketing Manager, and the Managing Director. The main aim was to provide an optimal way of dealing with product Z which was unprofitable and was expected to
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