A.T. Ltd operating at 80 per cent level of activity furnishes the following information: During the year, the variable costs are expected to increase by 10 per cent. There will, however, be no change...

A.T. Ltd operating at 80 per cent level of activity furnishes the following information:

During the year, the variable costs are expected to increase by 10 per cent. There will, however, be no change in fixed costs, the selling prices and the units to be produced and sold. The sales potential for each of the products is unlimited. (i) You are required to prepare a statement showing the P/V ratio, break-even point and margin of safety for each product and for the company as a whole. (ii) The company intends to increase the production of only one of the three products to reach the full capacity level by utilising the spare capacity available. Assuming that all the three products take the same machine time, advise with reasons, which of the three products should be produced so that the overall profitability is the maximum.