Hodgeson Ltd makes a range of products, many of which require the use of components that...

 

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Hodgeson Ltd makes a range of products, many of which require the use of components that are either bought from a sub-contractor or made by the business itself. Three of Hodgeson's products ('Premium', "Basic and 'Component LFC'), whose production all require the same facilities, require the use of a raw material 'CR7". CR7 is not used on any other of the business's products. The material is very difficult to work with and requires a high level of special skill. Both the material and appropriate skilled labour is in limited supply. All labour is employed by the business on long-term contracts, where workers are not laid off if there are surplus labour hours, so their costs are fixed for Hodgeson. The budgeted per-unit cost structures of the three products for the forthcoming year are as follows: Premium Component LFC TIT Basic Raw materials 24 19 16 Variable overheads 2 4 2 Labour 45 26 37 Fixed overheads 37 108 19 68 29 84 Included in the raw material cost were the following amounts for CR7, which has a budgeted cost of £4 a gram: Premium 12 Basic Component LFC 11 Included in the direct labour cost were the following amounts for the special skilled labour (who work on the CR7), which is paid £12 an hour: Premium 22 Basic 19 Component LFC 18 The Premium and Basic are completed products that are sold to external customers at budgeted unit prices of £180 and £110 respectively. CONTINUED Component LFC is used as a component in another of the business's products (the Luxury). The final selling price of each Luxury is £200 per unit, but further variable processing costs will be incurred. Hodgeson applies an internal transfer price for Component LFC of £90 per unit. The budgeted demand for the forthcoming year for the three products is: units Premium 600 Basic 500 Component LFC 350 The demand for each product is independent of that for the other two. The supply of CR7 during the forthcoming year is limited to 3,000 grams. The maximum available amount of the special skilled labour during the forthcoming year is 2,600 hours. You are Julie Chen, a recently qualified Management Accountant, and you have been asked by the board of directors to advise them with planning the future production of Hodgeson's three products. Required The board of directors would like you to advise them on the following items and have asked that you present your findings in a report. a) The directors believe that the business will not be able to meet the expected annual demand for all three products. They are, however, unsure as to whether this is due to the availability of special skilled labour or the supply of raw material CR7. Identify, with supporting calculations, which of these is the limiting factor for Hodgeson in meeting expected annual product demand. (8 marks) b) Using the data provided calculate the contribution per unit for each of Hodgeson's three products: Premium, Basic and Component LFC. Using these calculations recommend the optimal quantity of each product that Hodgeson should produce annually. (10 marks) Hodgeson Ltd makes a range of products, many of which require the use of components that are either bought from a sub-contractor or made by the business itself. Three of Hodgeson's products ('Premium', "Basic and 'Component LFC'), whose production all require the same facilities, require the use of a raw material 'CR7". CR7 is not used on any other of the business's products. The material is very difficult to work with and requires a high level of special skill. Both the material and appropriate skilled labour is in limited supply. All labour is employed by the business on long-term contracts, where workers are not laid off if there are surplus labour hours, so their costs are fixed for Hodgeson. The budgeted per-unit cost structures of the three products for the forthcoming year are as follows: Premium Component LFC TIT Basic Raw materials 24 19 16 Variable overheads 2 4 2 Labour 45 26 37 Fixed overheads 37 108 19 68 29 84 Included in the raw material cost were the following amounts for CR7, which has a budgeted cost of £4 a gram: Premium 12 Basic Component LFC 11 Included in the direct labour cost were the following amounts for the special skilled labour (who work on the CR7), which is paid £12 an hour: Premium 22 Basic 19 Component LFC 18 The Premium and Basic are completed products that are sold to external customers at budgeted unit prices of £180 and £110 respectively. CONTINUED Component LFC is used as a component in another of the business's products (the Luxury). The final selling price of each Luxury is £200 per unit, but further variable processing costs will be incurred. Hodgeson applies an internal transfer price for Component LFC of £90 per unit. The budgeted demand for the forthcoming year for the three products is: units Premium 600 Basic 500 Component LFC 350 The demand for each product is independent of that for the other two. The supply of CR7 during the forthcoming year is limited to 3,000 grams. The maximum available amount of the special skilled labour during the forthcoming year is 2,600 hours. You are Julie Chen, a recently qualified Management Accountant, and you have been asked by the board of directors to advise them with planning the future production of Hodgeson's three products. Required The board of directors would like you to advise them on the following items and have asked that you present your findings in a report. a) The directors believe that the business will not be able to meet the expected annual demand for all three products. They are, however, unsure as to whether this is due to the availability of special skilled labour or the supply of raw material CR7. Identify, with supporting calculations, which of these is the limiting factor for Hodgeson in meeting expected annual product demand. (8 marks) b) Using the data provided calculate the contribution per unit for each of Hodgeson's three products: Premium, Basic and Component LFC. Using these calculations recommend the optimal quantity of each product that Hodgeson should produce annually. (10 marks) Hodgeson Ltd makes a range of products, many of which require the use of components that are either bought from a sub-contractor or made by the business itself. Three of Hodgeson's products ('Premium', "Basic and 'Component LFC'), whose production all require the same facilities, require the use of a raw material 'CR7". CR7 is not used on any other of the business's products. The material is very difficult to work with and requires a high level of special skill. Both the material and appropriate skilled labour is in limited supply. All labour is employed by the business on long-term contracts, where workers are not laid off if there are surplus labour hours, so their costs are fixed for Hodgeson. The budgeted per-unit cost structures of the three products for the forthcoming year are as follows: Premium Component LFC TIT Basic Raw materials 24 19 16 Variable overheads 2 4 2 Labour 45 26 37 Fixed overheads 37 108 19 68 29 84 Included in the raw material cost were the following amounts for CR7, which has a budgeted cost of £4 a gram: Premium 12 Basic Component LFC 11 Included in the direct labour cost were the following amounts for the special skilled labour (who work on the CR7), which is paid £12 an hour: Premium 22 Basic 19 Component LFC 18 The Premium and Basic are completed products that are sold to external customers at budgeted unit prices of £180 and £110 respectively. CONTINUED Component LFC is used as a component in another of the business's products (the Luxury). The final selling price of each Luxury is £200 per unit, but further variable processing costs will be incurred. Hodgeson applies an internal transfer price for Component LFC of £90 per unit. The budgeted demand for the forthcoming year for the three products is: units Premium 600 Basic 500 Component LFC 350 The demand for each product is independent of that for the other two. The supply of CR7 during the forthcoming year is limited to 3,000 grams. The maximum available amount of the special skilled labour during the forthcoming year is 2,600 hours. You are Julie Chen, a recently qualified Management Accountant, and you have been asked by the board of directors to advise them with planning the future production of Hodgeson's three products. Required The board of directors would like you to advise them on the following items and have asked that you present your findings in a report. a) The directors believe that the business will not be able to meet the expected annual demand for all three products. They are, however, unsure as to whether this is due to the availability of special skilled labour or the supply of raw material CR7. Identify, with supporting calculations, which of these is the limiting factor for Hodgeson in meeting expected annual product demand. (8 marks) b) Using the data provided calculate the contribution per unit for each of Hodgeson's three products: Premium, Basic and Component LFC. Using these calculations recommend the optimal quantity of each product that Hodgeson should produce annually. (10 marks) Hodgeson Ltd makes a range of products, many of which require the use of components that are either bought from a sub-contractor or made by the business itself. Three of Hodgeson's products ('Premium', "Basic and 'Component LFC'), whose production all require the same facilities, require the use of a raw material 'CR7". CR7 is not used on any other of the business's products. The material is very difficult to work with and requires a high level of special skill. Both the material and appropriate skilled labour is in limited supply. All labour is employed by the business on long-term contracts, where workers are not laid off if there are surplus labour hours, so their costs are fixed for Hodgeson. The budgeted per-unit cost structures of the three products for the forthcoming year are as follows: Premium Component LFC TIT Basic Raw materials 24 19 16 Variable overheads 2 4 2 Labour 45 26 37 Fixed overheads 37 108 19 68 29 84 Included in the raw material cost were the following amounts for CR7, which has a budgeted cost of £4 a gram: Premium 12 Basic Component LFC 11 Included in the direct labour cost were the following amounts for the special skilled labour (who work on the CR7), which is paid £12 an hour: Premium 22 Basic 19 Component LFC 18 The Premium and Basic are completed products that are sold to external customers at budgeted unit prices of £180 and £110 respectively. CONTINUED Component LFC is used as a component in another of the business's products (the Luxury). The final selling price of each Luxury is £200 per unit, but further variable processing costs will be incurred. Hodgeson applies an internal transfer price for Component LFC of £90 per unit. The budgeted demand for the forthcoming year for the three products is: units Premium 600 Basic 500 Component LFC 350 The demand for each product is independent of that for the other two. The supply of CR7 during the forthcoming year is limited to 3,000 grams. The maximum available amount of the special skilled labour during the forthcoming year is 2,600 hours. You are Julie Chen, a recently qualified Management Accountant, and you have been asked by the board of directors to advise them with planning the future production of Hodgeson's three products. Required The board of directors would like you to advise them on the following items and have asked that you present your findings in a report. a) The directors believe that the business will not be able to meet the expected annual demand for all three products. They are, however, unsure as to whether this is due to the availability of special skilled labour or the supply of raw material CR7. Identify, with supporting calculations, which of these is the limiting factor for Hodgeson in meeting expected annual product demand. (8 marks) b) Using the data provided calculate the contribution per unit for each of Hodgeson's three products: Premium, Basic and Component LFC. Using these calculations recommend the optimal quantity of each product that Hodgeson should produce annually. (10 marks)

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a Limiting Factor Answer Raw Material CR7 is the limiting factor Working i Calculations for quantity of the material CR7 required for meeting the tota... View the full answer