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The management of a business is concerned about its inability to obtain enough fully trained labour to enable it to meet its present budget projection.
Information concerning the three services offered by the business is as follows:Service Alpha Beta Gamma TotalA??L000 A??L000 A??L000 A??L000Variable costMaterials 6 4 5 15Labour 9 6 12 27Expenses 3 2 2 7Allocated fixed cost 6 15 12 33Total cost 24 27 31 82Profit 15 2 2 19Sales revenue 39 29 33 101
The amount of labour likely to be available amounts to A??L20,000. All of the variable labour is paid at the same hourly rate. You have been asked to prepare a statement of plans ensuring that at least 50 per cent of the budgeted sales revenues are achieved for each service. The balance of labour is used to produce the greatest profit.
Required:
a) Prepare the statement, with explanations, showing the greatest profit available from the limited amount of skilled labour available, within the constraint stated. Hint: Remember that all labour is paid at the same rate.
b) What steps could the business take in an attempt to improve profitability, in the light of the labour shortage?
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