Reference no: EM133161510
Question - Essel World Ltd manufactures four (4) products. The annual demand for the products, their selling prices and variable production costs are as follows:
|
Products
|
P
|
Q
|
R
|
S
|
|
Demand (units)
|
120,000
|
186,000
|
171,000
|
99,000
|
|
Selling price ($)
|
23.90
|
28.70
|
55.00
|
47.90
|
|
Direct material cost per unit ($)
|
10.08
|
13.20
|
30.48
|
24.96
|
|
Direct labour cost per unit ($)
|
4.08
|
4.10
|
6.72
|
6.38
|
|
Variable overheads per unit ($)
|
1.44
|
1.40
|
2.40
|
2.16
|
Additional information:
The variable overheads are absorbed on a machine hour basis at a rate of $1.20 per machine hour.
Total fixed overheads amounted to $4,684,000 per annum.
Production capacity available was 815,000 machine hours per annum.
Products P, Q and R can purchased from an external supplier at $21.36 per unit, $24 per unit and $48 per unit respectively.
Required -
1. As a management accountant of Essel World Ltd, you are required to determine how many units of each product are to be produced in-house and how many of them are to be bought in from the market with a view to maximise profit. Show detailed calculations in support of your answer.
2. Find a profitability statement detailing the contribution from each product and the total profit which the company can generate based on your answer to requirement (a) above.