Question

SECTION A Q.2 As Engineering Manager in Your Company Ltd. you are responsible for maximising the profit from four product lines W, X, Y and Z. You have been provided with the following information: Direct materials (kg) 75 90 85 70 Direct labour (h) Fabrication Assembly Packaging 4.5 8 3.5 4.5 9.5 4 3.5 6 Selling price per unit (S) 1400 2350 3000 1200 280 Max. sales for the period (in units) 400 300 450 Budgeted production 300 270 270 280 (in units ) Additional information is also provided 1 There are no closing stocks. 2. Material costs are estimated at £8.00/kg 3. The labour rate for the assembly and packaging operations is £16.00/h and £22/h for the fabrication process. The skilled labour required for the fabrication is in short supply although there is just enough to meet the current budgeted production 4. Required Prepare a statement showing the contribution from each product based on the budgeted production. (a) (8 marks) (b) Calculate the contribution per unit of limiting factor (2 marks) Prepare a statement showing the maximum total contribution that can be obtained. Explain your rationale (c) (10 marks)

Answer 1

1 Statement of Contribution: Product Selling Price per unit Less: Direct Material per unit Less: Direct Labour per unit 1,400 E 2,350 f 3,000 E 1,200 680 (75*8) (90 8) (85*8) (70 8) Fabrication (4322) (6*16) (3 16 (4.5* 22 (8*16) (3.5*16) (4.5 22) (9.5*16) (4*16 (3.5*22) (6*16 (3316) Assembly 152 Packaging 48 64 48 Contribution per unit Budgeted Production (units) Total Budgeted Contribution 568 1,347 £ 2,005f 419 300 270 270 170,400 £ 363,690 £ 541,350f£ 117,320