Reference no: EM133034269

Question - Delcom Ltd. specializes in the production of laptop computers. The company has only 9,000 machine hours whereas skilled labour hors for the quarter are limited to 7,500 for the quarter. Fixed costs are budgeted at Shs 43.2 million. The data below relates to the projections for the last quarter of 2009.

	Model 1	Model 2	Model 3
Selling price per unit [Shs 000]	42	54	36
Projected demand [units]	1,600	1,250	2,400
Machine hours required per unit	2.5	4	1.5
Labour hours per unit	1.5	2	1
Variable cost per unit [Shs 000]	24	34	21

Required -

a) Determine the scarce resource between machine hours and skilled labour, and compute the shortfall for the quarter in hours.

b) Advise Delcom on the optimal production mix and the maximum profits that the company can earn from this production mix.

c) Eighty percent (80%) of projected demand for Model 2 represents an order by the government for senior civil servants and departmental heads in various government departments. Delcom Ltd won the bid to supply the computers. Determine the effect on the profits if the company honours the order.

d) Outline the assumptions made in the analysis in a-c above.

e) In an effort to satisfy the market demand, Delcom Ltd can outsource both machine hours as well as acquire additional hours of skilled labour. Each machine hour can be outsourced at Shs 3 600 whereas labour hours can be outsourced at Shs 2 400 per hour. Advise Delcom Ltd on whether it is worthwhile to outsource.