Question 1 From Drury (2000) 5th edition question 26.1
G Limited, manufacturers of superior garden ornaments, is preparing its production budget for the coming period. The company makes four types of ornament, the data for which is as follows:
Product| | Pixie| Elf| Queen| King|
| | £ per unit| £ per unit| £ per unit| £ per unit| | | | | | |
Direct materials| 25| 35| 22| 25|
Variable overhead| 17| 18| 15| 16|
Selling price| 111| 98| 122| 326|
| | | | | |
Direct labour hours| hrs per unit| hrs per unit| hrs per unit| hrs per unit| Type 1| | 8| 6| -| -|
Type 2| | -| -| 10| 10|
Type 3| | -| -| 5| 25|
Fixed overhead amounts to £15,000 per period.
Each type of labour is paid £5 per hour but, because of the skills involved, an employee of one type cannot be used for work normally done by another type. The maximum hours available of each type are:
Type 1 8,000 hours
Type 220,000 hours
Type 325,000 hours.
The marketing department judges that, at the present selling prices, the demand for the products is likely to be: Pixieunlimited demand
You are required to:
a)Calculate the product mix that will maximise profit and the amount of the profit.
b)Determine whether it would be worthwhile paying Type 1 labour for overtime working at time and a half and, if so, to calculate any extra profit for each 1,000 hours of overtime.
c)Comment on the principles used to find the optimum product mix in part (a), pointing out any possible limitations.
d)Explain how a computer could assist in providing a solution for the data shown above.
Based on BPP (1996) ACCA Study Text. Professional Paper 9.
Products X, Y and Z are produced in a factory. The factory’s capacity is restricted by a bottleneck in the process at stage W. The machine...