The Islay Whisky Company Ltd

TASK 1
I)
The Islay Whisky Company Ltd
Marginal Cost Statement for 1 unit
Type of whisky
Basic reserve
Original reserve
Special reserve

£
£
£
Revenue
6.95
14.95
23.95

Variable Cost

Direct materials
1.80
3.95
5.40
Direct labour
3.60
3.65
7.75
Direct expenses
0.80
1.25
1.75

6.20
8.85
14.90

Contribution
0.75
6.10
9.05
Diagram.1
II)
The Islay Whisky Company Ltd
Marginal Cost Statement for units
Type of whisky
Basic reserve
Original reserve
Special reserve

£
£
£
Predicted sales
80000
60000
25000
Revenue
556000
897000
598750

Variable Cost

Direct materials
144000
237000
135000
Direct labour
288000
219000
193750
Direct expenses
64000
75000
43750

496000
531000
372500

Contribution
60000
366000
226250
Diagram.2
III)
a) Contribution per £1 direct labour

Basic reserve
Original reserve
Special reserve

£
£
£
Contribution
Direct labour
0.2083
1.6712
1.6759
Ranking
3rd
2nd
1st
Diagram.3
Therefore, if direct labours are a limiting factor, maximise production of Special reserve, followed by Original reserve; reduce production of Basic reserve.
b) Contribution per £1 direct materials

Basic reserve
Original reserve
Special reserve

£
£
£
Contribution
Direct materials
0.4166
1.5443
1.676
Ranking
3rd
2nd
1st
Diagram.4
Therefore, if direct materials are a limiting factor, maximise production of Special reserve, followed by Original reserve; reduce production of Basic reserve.

c) Contribution per £1 direct expenses

Basic reserve
Original reserve
Special reserve

£
£
£
Contribution
Direct expenses
0.9375
4.880
5.1714
Ranking
3rd
2nd
1st
Diagram.5
Therefore, if direct expenses are a limiting factor, maximise production of Special reserve, followed by Original reserve; reduce production of Basic reserve.
IV)
136000 ÷ (6+3+1)=136000 ÷ 10=13600
Before ceasing:
Type of whisky
Basic
reserve
Original