Reference no: EM132545343

Bulla Ltd has recently expanded its production facility to satisfy a new customer order that will start in six months. As a consequence they will have the opportunity to make use of the spare capacity for the next six months. Financial information on the current products sold by Bulla Ltd is as follows:

                                                                          Budget              Standard                Superior

Selling Price                                                 $40                   $45                  $60

Direct Material                                               10                      12                  12

Direct Labour ($10 per hour)                             5                         10                15

Variable overhead (allocated based on labour hours)  4                        8               12

Fixed overhead (allocated based on machine hours)   4                        8                  8

Required

Question a. For the next six months, the new production facility has no constraints from either a labour or machine hour perspective. Which product or mix of products should Bulla Ltd produce using this capacity? Show all workings and calculations.

Question b. Assess whether your answer to (a) would be different if there was a constraint in relation to the labour hours available.