Goode, Billings and Prosper plc manufactures two products, Razzle and Dazzle. Unit selling prices and variable costs, and daily fixed costs are:

Production of the two products is restricted by limited supplies of three essential inputs: Raz, Ma, and Taz. All other inputs are available at prevailing prices without any restriction. The quantities of Raz, Ma, and Taz necessary to produce single units of Razzle and Dazzle, together with the total supplies available each day, are:

William Billings, the sales director, advises that any combination of Razzle and/or Dazzle can be sold without affecting their market prices. He also argues very strongly that the company should seek to maximize its sales revenues subject to a minimum acceptable profit of £44 per day in total from these two products.
In contrast, the financial director, Silas Prosper, has told the managing director, Henry Goode, that he believes in a policy of profit maximization at all times.
(a) Calculate:
(i) The profit and total sales revenue per day, assuming a policy of profit maximization, (10 marks)
(ii) The total sales revenue per day, assuming a policy of sales revenue maximization subject to a minimum acceptable profit of £44 per day, (10 marks)
(b) Suggest why businessmen might choose to follow an objective of maximizing sales revenue subject to a minimum profit constraint.

Transcribed Image Text:

Razzle Dazzle 30 20 10 20 Selling price per unit Variable costs per unit Contribution margin per unit Joint fixed costs per day 12 £60 kg per unit required Razzle Total available (kg per day) Dazzle Raz Ma Taz 5 8 2 12.5 10 0 75 80 15