Suggest and evaluate an alternative production strategy

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Reference no: EM131140415

A company manufactures four products from an input of a raw material to Process 1. Following this process, product A is processed in Process 2, product B in Process 3, product C in Process 4 and product D in Process 5.

The normal loss in Process 1 is 10% of input, and there are no expected losses in the other processes. Scrap value in Process 1 is $0.50 per litre. The costs incurred in Process 1 are apportioned to each product according to the volume of output of each product. Production overhead is absorbed as a percentage of direct wages.

Data in respect of the month of October

Process

	1	2	3	4	5	Total
Direct materials at $1.25 per litre	$'000 100	$'000	$'000	$'000	$'000	$'000 100
Direct wages	48	12	8	4	16	88
Production overhead						66
	A		Product B C			D
Output	litres 22,000		litres litres 20,000 10,000			litres 18,000
Selling price	$ 4.00		$ $ 3.00 2.00			$ 5.00
Estimated sales value at end of Process 1	2.50		2.80 1.20			3.00
Required

Suggest and evaluate an alternative production strategy which would optimise profit for the month. It should not be assumed that the output of Process 1 can be changed.

Reference no: EM131140415

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