Reference no: EM133123150

Question - King Ltd. makes three products, AA, BB and CC, of which unit costs, machine hours and selling prices are as follows:

	Product AA	Product BB	Product CC
Machine hours per unit	10	12	14
Labour hours per unit	1.2	0.8	0.4
	Rs	Rs	Rs
Direct materials @ Rs0.50 per kg	7	6	5
Direct wages @ Rs7.50 per hour	9	6	3
Variable overheads	3	3	3
	---	---	---
Variable cost per unit	19	15	11
Selling price per unit	25	20	15
	---	---	---
Contribution per unit	6	5	4
	---	---	---

Sales demand for the period is limited as follows.

	Units
Product AA	4,000
Product BB	6,000
Product CC	6,000

Miss Lily, the CEO of King Ltd. has stated "the supply of materials and machine capacity in any period is unlimited. However there is a scarce resource in that direct labour hours are limited to 5,000 hours for the period and it is company policy to produce a minimum of 1,000 units of Product AA".

Required -

1. Indicate the production levels that should be adopted for the three products in order to maximise contribution, and state the maximum contribution achievable in the period.

2. Advise Miss Lily as to any four ways that may help to overcome the direct labour constraint that exists within King Ltd.