Question

Kuddly Creations Ltd. manufactures a line of stuffed animals. Sales are increasing, and management is concerned that the company may not have sufficient capacity to meet the expected demand for the coming year. The following sales and production data are available for planning purposes: Product Selling Price Per Unit Direct Materials Direct Labour Monkey Bear Panda Dog Kangaroo Estimated Demand in units 80.000 105,000 60,000 48,000 200.000 $20.00 12.50 9.00 14.75 8.50 $6.91 4.30 3.90 6.50 4.70 $5.60 3.20 2.40 4.00 1.60 The following additional information is available: 1 a) Because of strong competition, the company feels that it cannot increase its selling prices above those indicated. b) The direct labour rate is $8 per hour; this rate is expected to remain unchanged during the coming year. c) Fixed overhead costs total S640,000 per year. d) Variable overhead costs are equal to 25 percent of direct labour costs. e) The company's plant has a capacity of 140,000 direct labour hours per year. Required: Given the above data, determine how many units of each product should be produced during the coming year.

Answer 1

Computation:

Particulars	Monkey	Bear	Panda	Dog	Kangaroo	Total
1. Selling Price per unit	20	12.50	9	14.75	8.50
2. Direct Materials per unit	6.91	4.30	3.90	6.50	4.70
3. Direct Labour per unit	5.60	3.20	2.40	4	1.60
4. Variable Overheads per unit @ 25% of (3)	1.40	0.80	0.60	1	0.40
5. Contribution per unit (1-2-3-4)	6.09	4.20	2.10	3.25	1.80
6. Direct Labour Hours per unit (3)/$8	0.70	0.40	0.30	0.50	0.20
7. Contribution per Direct Labour Hour (5/6)	8.70	10.50	7	6.50	9
8. Ranking in the order of preference from highest to lowest	III	I	IV	V	II
9. Estimated Demand	80,000	105,000	60,000	48,000	200,000
10. Total Hours (6*9)	56,000	42,000	18,000	24,000	40,000	180,000
11. Availablw Direct Labour Hours						140,000
12. Allocation of Direct Labour Hours as per the ranks	56,000	42,000	2,000 (balance)	NIL	40,000	140,000
13. Number of Units to be produced (12/6)	80,000	105,000	6,666	NA	200,000