Abstract

Rameshwar started a High-density polyethylene (HDPE) moulded bucket manufacturing unit in the month of April 2019. He was successful in producing and selling around 130,000 units of the 21 liter capacity HDPE moulded bucket (Product-1) within the first seven months of launching commercial business operations. Rameshwar found that there was high demand for 18 liter HDPE buckets and planned to manufacture these too (Product-2) simultaneously. However, the dilemma he faced was what sales mix he should adopt to get the maximum profit. The present case study has been designed to discuss the concepts of absorption costing and marginal costing. It is also intended to give the students an understanding of how the marginal costing technique helps in determining the optimum sales mix of Product-1 and Product-2.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• The difference between absorption costing and marginal costing
• The application of the marginal costing technique in the decision-making process
• Various components of the marginal costing technique
• The process of selecting the optimum sales mix of different products

Keywords

Accounting; Marginal Costing; Absorption Costing; Contribution Margin; Optimum Sales Mix; Decision-making involving alternative choices; Variable Costs; Fixed Costs; Profitability; Profit; Production Capacity