Kwon Ltd, a valued client of Elite Consultancy, is currently facing significant challenges in securing a key

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Question:

Kwon Ltd, a valued client of Elite Consultancy, is currently facing significant challenges in securing a key component, KL15, that is essential to the production of all four of its products (products A, B, C and D). Unfortunately, a labour dispute has arisen at the factory that supplies Kwon Ltd with KL15, resulting in a marked reduction in the availability of this component. Kwon Ltd has received notice that the supply of KL15 will be restricted to 22,400 units for the upcoming year. With the limited availability of the KL15, Kwon Ltd is confronted with the task of optimising its usage of available KL15 to maximise the company’s profit.

Each KL15 costs $2 per unit and is used in varying amounts in each of the four products. Kwon Ltd also incurs total fixed costs of $8,000 per year covering both manufacturing and non-manufacturing costs and does not hold any finished goods or work-in-progress inventory. Elite Consultancy has complied the following information on the four products to help Kwon Ltd make informed decisions regarding their production:

	Product A	Product B	Product C	Product D
Maximum demand per year	4,000 units	2,500 units	3,600 units	2,750 units
Selling price per unit	$14	$12	$16	$17
Cost of KL15 used in one unit of product	$4	$2	$6	$8
Other variable costs per unit	$7	$9	$6	$4

REQUIRED:

When preparing the business report for Kwon Ltd, it is crucial to address the following issues with supportive calculations.

Develop a production schedule that maximizes Kwon Ltd’s profit for the coming year by determining the order in which each product should be produced. Provide supporting calculations and reasoning to justify your recommended production schedule.