Reference no: EM133015967
Question - Al-Mafraq Manufacturing Company has three products all of which require the same production facility and utilities. Financial data of the products are shown below:
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Financial Information per unit
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Product X
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Product Y
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Product Z
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Selling price
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JOD 28
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JOD 60
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JOD 125
|
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Direct Materials costs
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JOD 8
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JOD 15
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JOD 20
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Direct Labor costs
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JOD 10
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JOD 20
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JOD 50
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Variable overhead costs
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JOD 5
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JOD 10
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JOD 25
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Al-Mafraq Manufacturing Company makes the three products in a single facility. Direct labor is paid at the rate of JOD 2 per hour. Fixed manufacturing overhead costs are estimated at JOD 25,000 per year. In the short run, the company cannot increase its direct labor strength and as a result, only 35,000 direct labor hours are available per year.
The company has commitments to produce 500 units of each product. It has been suggested by the middle managers that after meeting the minimum requirements for products X, Y and Z, the balance of available direct labor hours should be used to produce product Z.
The General Manager (GM) of the company was not convinced with the suggestion of the middle managers, so the GM asked you as a Senior Financial Consultant to:
Required -
1. Prepare an income statement showing the expected financial results if the suggestion of the middle managers is adopted.
2. If you do not agree with the suggestion of the middle managers in which you evaluated in (1) above, you are required to prepare an income statement for your suggested alternative.
3. Determine your optimal production plan of each product that maximizes the net operating income of the company.