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Analysis of Product Profitability and Strategic Decisions

You work as management consultant and have been approached by a client who is concerned about the future of their engineering business. The board of directors are considering halting the production of 2 of their products that appear to be making no profit.
As you can see from the table below the directors are considering closing products Y and Z in an effort to improve overall profitability.
You establish that management accounting would show the results differently and may affect the directors’ decision.
i. Calculate the contribution of each product?             
ii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Y
iii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Z
iv. Discuss how and why marginal costing calculates contribution to pay overheads and why this is useful in evaluating product value to a firm?
Do you agree that profitability will improve by ceasing to make Products Y and Z? What do you suggest the company does to increase profitability?                    

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