Reference no: EM132540340

A company makes two products, the variable costs are as follows;

                                                        Product A               Product B

                                                                     £                       £

Direct materials                                      1              3

Direct labour (£6 per hour)                         6            3

Variable overhead                                     1           1

                                                             8             7

• The sale price of A is £14 and B is £11. During the month of July the availability of Direct Labour is limited to 5000 hours due to staff taking holidays. Sales demand is expected to be 3000 units of A and 5000 units of B.
• Monthly fixed costs are £20,000 and opening stocks are zero.

Required:

Question a) Calculate the deficiency in labour hours for the month.

Question b) Determine the priority ranking for production.

Question c) Calculate the maximum profit that can be made next month

Question d) Calculate the loss of profit due to this limiting factor and consider the maximum amount the company would be willing to pay,per hour for agency staff.