Determine the single limiting factor, Cost Accounting

Assignment Help:

Determine the Single Limiting Factor

A company manufactures and sells three products as A, B and C. The unit cost and revenue structure for every product and its maximum forecast demand for the coming period are given as:

Product

A

B

C

Selling price per unit (Shs.)

140

100

120

Variable cost per unit (Shs.)

  70

  60

  80

Maximum demand (units)

500

300

300

Machine hours required per unit

  10

    4

   5

The company has a maximum of 6000 machine hours available throughout the coming period

Required

1. Estimate the number of units of each product A, B, and C that should be produced and sold in order to maximize profit

2. Estimate the maximum profit earned from the decision strategy per 1

3. Suggest other factors that management may wish to consider such could result in a change in their decision

4. Estimate the product units to be produced and sold and the net profit earned whether the company wishes to maximize sales of product A since it is thought to be a future market leader

5. Estimate the product units to be sold and the net profit earned it the company agrees to produce a minimum of 70 percent of the maximum demand of every product in order to maintain market spread.

Solution

 

A

B

C

Total

Maximum demand (units)

       500

  300

  300

 

Machine hours per unit

   10

    4

    5

 

Machine hours required

5000

1200

1500

7700

Machine hours available

 

 

 

6000

Shortfall

 

 

 

1700

The specified calculation confirms that machine time is a limiting factor that will restrict the number of products that can be produced and sold

Product

A

B

C

Total

Contribution per unit (Shs.)

70

40

40

 

Contribution per machine hr (Shs.)

70

10

8

 

Product ranking

(3)

(1)

(2)

 

Machine hours utilized

3300

1200

1500

 

1.    Product units produced and sold

330

300

300

 

       Contribution earned (Shs.)          

23100

12000

12000

47100

       Less fixed cost

 

 

 

20000

2.    Net profit            

 

 

 

22710

 

3.  The profit maximizing mix may not be implemented where management wish to keep a more balanced market mix or wherever they wish to concentrate on a future market leader. In addition they may wish to explore the possibility of sub contracting some production or of acquiring additional machinery either part of a long term expansion of capacity or on hire

4. Where the sales of product A are to be maximized since it is considered that it will be a future market leader, the analysis sequence is as:

a) Employ the machine hours essential to maximize production of A that is 500 units x 10 hour = 5000 hours

b) Employ the keeping 1000 machine hours to produce B and C in their ranking order

Product B has a higher contribution per machine hour. The 1000 machine hours available are enough to produce 1000/4 = 250 units of B. It is less than its maximum demand. There are no hours left in that to produce product C. Therefore the sales and profit strategy is as:

 

Units

Contribution per unit Shs.

Total

Product A

500

70

35000

Product B

280

40

10000

Product C

Nil

 

 

 

 

 

45000

Less fixed cost

 

 

20000

Net profit

 

 

25000

 

5. Where sales have to be spread in order to satisfy 70 percent of the maximum demand of every product like the first criterion the analysis sequence is

a) Employ the machine hours required to produce 70 percent of the maximum production of every product

b) Employ the residual hours up to the maximum of 6000 hours to produce additional units of the product in their ranking up to the maximum demand in every case so long as it is possible

 

A

B

C

Total

Maximum units           

500

300

300

 

70% of max units

350

210

210

 

Machine hours

3500

840

1050

5390

Residual hours usage

-

360

250

610

Total machine hours used

3500

1200

1300

6000

Total units

350

300

260

 

Total contribution Shs.

 

 

 

 

 

24500

12000

10400

46900

Less fixed cots

 

 

 

20000

Net profit

 

 

 

26900

 


Related Discussions:- Determine the single limiting factor

Profit analysis and cost volume or cvp analysis, Profit Analysis and Cost V...

Profit Analysis and Cost Volume or CVP Analysis CVP Analysis checks the relationship between profit, activity level and the cost. CVP Analysis assists in a broad range of p

Working capital accounts, Determine the additional cash a company could obt...

Determine the additional cash a company could obtain from its working capital accounts if it can improve its average collection period by three days and inventory turnover by 0.5 t

Methods of costing, METHODS OF COSTING : 1. Job costing :  Job costing ...

METHODS OF COSTING : 1. Job costing :  Job costing is the essential costing technique appropriate to those industries somewhere the work consist of separate contracts, or batch

Which of the four types of costs would include direct labor, Which of the f...

Which of the four types of costs would include Direct Labor? A. Unit-Level B. Batch-Level C. Product Sustaining D. None of the above

Feedback forward control system and feedback controls, A transport company ...

A transport company is preparing its cost budgets for the coming year. It has been set both social objectives & cost targets by the government which it must achieve in order to rec

Organization of budgetary control, Organization of Budgetary Control B...

Organization of Budgetary Control Budgetary control ideally includes the given steps as: 1. The creation of budget centres. 2. The introduction of sufficient

Cost audit, what is cost audit? types of cost audit explain

what is cost audit? types of cost audit explain

Assumptions of cvp, Assumptions of CVP This chapter has given informati...

Assumptions of CVP This chapter has given information on how to apply CVP for the business analysis. Most of this analysis is keyed to the model of how profitability is impacte

Process of setting standards in standard costing, Process of Setting Standa...

Process of Setting Standards in Standard Costing Establishing correct a standard is extremely important due to the accuracy of the standards usually finds out the success of t

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd