RoJo Ltd manufactures a range of summerhouses sold in garden centres around the UK. At the beginning of this financial year RoJo Ltd launched a new product, the ‘Glasshouse’. RoJo Ltd follows a pricing policy of profit maximisation and at the end of the last financial year carried out market research in order to establish the profit maximisation price of the Glasshouse. The data obtained from this research is as follows: At a market price of £1,200 annual demand for the Glasshouse will be 15,000. When the price is changed to £2,000 annual demand is expected to be 11,000 Glasshouses. 

The production department has provided sufficient information to the accounts department for them to establish some standards.

 

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Each Glasshouse will use 8 square metres of wood at a cost of E70 per square metre for the wood. In addition there are 3 square metres of toughened glass at £95 per square metre. The fastenings used within the Glasshouse are expected to cost E100 per Glasshouse. Each Glasshouse requires 9 hours of labour at £14 per hour and variable overheads are £4.50 per labour hour. Depending on the level of production, the company can enter a contract with Rentalot Ltd to rent factory premises and equipment: 5,000 to 7,500 Glasshouses at £950,475 7,501 to 10,000 Glasshouses at £1,389,825 10,001 to 40,000 Glasshouses at £1,845,750 Between Rojo Ltd will enter into a contract with Rentalot Ltd based on the quantity of Glasshouses to maximise profits. Fixed overheads will be absorbed on the basis of labour hours. Rojo Ltd assumes that the price/demand relationship is of a linear nature. Required: a) Calculate the profit maximising price and demand forthe Glasshouse. (16 marks) b) Assuming that Rojo Ltd sets its budget based on the profit maximisingnumber of Glasshouses per year, calculate the standard cost, based on absorption costing, for one Glasshouse. (6 marks) At the end of the financial year 7,900 Greenhouses had been produced. Thefixed costs wereas per the contract agreed with Rentalot Ltd. 72,000 labour hours were workedto produce the 7,900 Greenhouses. c) Calculatethe Total fixed overhead variance, Volume variance, Volumeefficiency variance and Volume capacity variance. Each Glasshouse will use 8 square metres of wood at a cost of E70 per square metre for the wood. In addition there are 3 square metres of toughened glass at £95 per square metre. The fastenings used within the Glasshouse are expected to cost E100 per Glasshouse. Each Glasshouse requires 9 hours of labour at £14 per hour and variable overheads are £4.50 per labour hour. Depending on the level of production, the company can enter a contract with Rentalot Ltd to rent factory premises and equipment: 5,000 to 7,500 Glasshouses at £950,475 7,501 to 10,000 Glasshouses at £1,389,825 10,001 to 40,000 Glasshouses at £1,845,750 Between Rojo Ltd will enter into a contract with Rentalot Ltd based on the quantity of Glasshouses to maximise profits. Fixed overheads will be absorbed on the basis of labour hours. Rojo Ltd assumes that the price/demand relationship is of a linear nature. Required: a) Calculate the profit maximising price and demand forthe Glasshouse. (16 marks) b) Assuming that Rojo Ltd sets its budget based on the profit maximisingnumber of Glasshouses per year, calculate the standard cost, based on absorption costing, for one Glasshouse. (6 marks) At the end of the financial year 7,900 Greenhouses had been produced. Thefixed costs wereas per the contract agreed with Rentalot Ltd. 72,000 labour hours were workedto produce the 7,900 Greenhouses. c) Calculatethe Total fixed overhead variance, Volume variance, Volumeefficiency variance and Volume capacity variance.

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a Calculation of profit maximizing demand price Given the demand Price linear function based on belo... View the full answer