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

Flexible budget, Flexible Budget Flexible budget is a budget that is d...

Flexible Budget Flexible budget is a budget that is designed to change in accordance along with the level of activity attained. It includes budgeting at various levels in anti

What is the optimal price without price discrimination, We consider two reg...

We consider two regions A and B. Each market has the same size (i.e. number of consumers) but differs in the willingness to pay for one unit of the good proposed by the firm. On ma

Calculate the nominal interest rate, A 1- year Canadian bond with a face va...

A 1- year Canadian bond with a face value of 5000 can be purchased at 4800. a) Calculate the nominal interest rate in Canada. b) If the Canadian dollar is expected to depreci

Process accounts, What is the easiest of calculate equivalents before produ...

What is the easiest of calculate equivalents before producing a process account 2

Direct labour budget, Direct Labour Budget It represents the forecasts...

Direct Labour Budget It represents the forecasts of indirect and direct labour requirements to meet the demands of the company throughout the budget period. Therefore the budg

Marginal costing, a company wants to buy a new machine to replace on which ...

a company wants to buy a new machine to replace on which is having frequent breakdown.............. .......... c-the models suitable for different levels for demand of product?

Product costing, scope and limitations of product costing

scope and limitations of product costing

Prepare the relevant journal entry to account, The following information is...

The following information is provided to you concerning Lydia Ltd as at 30 June 2012.  Assume a company tax rate of 30%. (i) The balance of rent received in advance in the balan

Cash budget - budgetary planning and control, Cash Budget - Budgetary Plann...

Cash Budget - Budgetary Planning and Control This can records the cash outflows and inflows that are expected to take place in respect of every functional budget. This may be

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