Calculate the overall profitability

Reference no: EM132671529

Question - PK Ltd manufactures four types of mobile phones which all use "goggles", a component made in only one factory. Each goggle costs $50 to purchase. Due to a prolonged strike in the goggle factory, PK Ltd will only be able to purchase 20,000 goggles this year.

The following information relates to each type of mobile manufactured by PK Ltd:

Maximum Demand	Mobile A	Mobile B	Mobile C	Mobile D
Cost per mobile:	11000	3000	3500	700
Goggle	50	100	200	350
Other direct materials	30	80	98	300
Direct Labour	30	40	30	55
Fixed Costs	60	80	40	70
Profit per mobile	50	70	52	490
Selling Price per mobile	220	370	420	1265

Required -

(a) Calculate the numbers of each type of mobile to be produced and sold that would maximize the profit of PK Ltd.

(b) Prepare Marginal Income Statement showing the profit for the year.

PK Ltd has been approached by an outside supplier who can supply any of the four mobile phones at a cost of 80% of PK Ltd's selling price.

(c) Calculate the overall profitability if PK Ltd wants to supply all the four types of mobile phones at normal capacity.

(d) Identify and explain two issues which PK Ltd should take into account when buying ready-made mobiles from an outside supplier.

(e) PK Ltd has a normal credit period of 55 days. The new policy of company is to allow a discount of 3% for payment within 12 days. The company operates a bank overdraft at 16.5% per annum.

You are required to calculate the cost of the discount for Rs100 sales and advise if any.

Reference no: EM132671529

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