Reference no: EM133172971
Case study - 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 -
(a) 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.
(b) Prepare 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.