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Process Solutions provides a computer-based document processing service. The accountant has produced the following analysis.
Standard
Modified
Advanced
Sales quantity
1,000
1,100
1,200
Selling price
£5
£6
Sales revenue
5,000
5,500
7,200
Labour hours
100
120
160
Labour cost @ £20 / hour
2,000
2,400
3,200
Contribution
3,000
3,100
4,000
Contribution per unit sold
£3
£2.82
£3.33
The Sales Manager, whose team is paid a commission on sales revenue, prefers to sell the higher priced Advanced service. This is also the preferred service for the Accountant, although not for the same reason, as her argument is that the advanced service is better because of the higher contribution per unit sold. The Operations Manager argues that the Advanced Service consumes more labour hours than the Standard or Modified services and as labour availability limits his ability to process work; this should also be taken into account. The Operations Manager prefers the Standard or Modified service as this provides greater ability to use his capacity more flexibly.
The General Manager has asked for your advice in relation to this disagreement within the management team.
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