G Limited, manufacturers of superior garden ornaments, is preparing its production budget for the coming period. The

Question:

G Limited, manufacturers of superior garden ornaments, is preparing its production budget for the coming period. The company makes four types of ornament, the data for which are as follows:

Fixed overhead amounts to £15 000 per period.
Each type of labour is paid £5 per hour but because of the skills involved, an employee of one type cannot be used for work normally done by another type.
The maximum hours available in each type are:
Type 1........................... 8 000 hours
Type 2...........................20 000 hours
Type 3........................... 25 000 hours
The marketing department judges that, at the present selling prices, the demand for the products is likely to be:
Pixie .............................Unlimited demand
Elf...............................Unlimited demand
Queen........................ ...1500 unit
King..............................1000 units
(a) To calculate the product mix that will maximize profit, and the amount of the profit;
(b) To determine whether it would be worthwhile paying Type 1 Labour for overtime working at time and a half and, if so, to calculate the extra profit for each 1000 hours of overtime;
(c) To comment on the principles used to find the optimum product mix in part (a), pointing out any possible limitations;