Reference no: EM132562107

XYZ Ltd. is manufacturing three household products A, B and C and selling them in a competitive market. Details of current demand, selling price and cost structure are given below :

                                                 A                      B                         C

Expected demand (units)             10,000          12,000             20,000

Selling price per unit (Rs.)                20               16                     10

Variable cost per unit (Rs.)

Direct materials (Rs. 10/kg)                6                   4                      2

Direct labor (Rs. 15/hr.)                     3                   3                     1.50

Variable overheads                            2                   1                      1

Fixed overheads per unit (Rs.)               5                   4                    2

The company is frequently affected by acute scarcity of raw material and high labour turnover. During the next period, it is expected to have one of the following situations :

(a) Raw materials available will be only 12,100 kg.

(b) Direct labour hours available will be only 5,000 hours

(c) It may be possible to increase sales of any one product by 25% without any additional fixed costs but by spending Rs. 20,000 on advertisement. There will be no shortage of materials or labour.

Question 1: Suggest the best production plan in each case, and the resultant profit that the company would earn according to your suggestion.