Question :

1 Process Solutions gives a computer-based document processing service. The accountant has produced the subsequent analysis.

Standard              Modified             Advanced

Sales quantity    1,000     1,100     1,200

Selling price        £5           £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, though not for the same reason, as her argument is that the advanced service is better due to 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 labor availability limits his ability to process work, this could also be taken into account. The Operations Manager prefers the Standard or Modified service as this gives 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.