Following the transfer of some workers to the inspection stations to check on the quality of...
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Following the transfer of some workers to the inspection stations to check on the quality of the meals before they leave the company's kitchen, the company began to realise that the transfer was a highly sensible move. Customers have written positively in the social media about the promising meal quality that they have received. Revenues have since escalated substantially. The management notes that existing workforce in the inspection stations can only support up to 600 labour hours per month. The company estimates a monthly sales demand of up to 7,400 meals for Lady@Lunch. The demand for all other products taken together are estimated to be up to 10,000 meals per month. The process specifications requires 0.04 labour hours to check the quality of Lady@Lunch and 0.06 hours to check the quality of all other products. As the management accountant, you have undertaken an analysis using the linear programming model. Based on the analysis, it was found that the contribution-maximising output is to produce and sell 7,400 meals for Lady@Lunch and 5,080 meals for all other products taken together. (i) Determine the shadow price per direct labour hour in the inspection stations. [5 marks] (ii) Discuss the managerial implications of the shadow price. [5 marks] (10 marks) Following the transfer of some workers to the inspection stations to check on the quality of the meals before they leave the company's kitchen, the company began to realise that the transfer was a highly sensible move. Customers have written positively in the social media about the promising meal quality that they have received. Revenues have since escalated substantially. The management notes that existing workforce in the inspection stations can only support up to 600 labour hours per month. The company estimates a monthly sales demand of up to 7,400 meals for Lady@Lunch. The demand for all other products taken together are estimated to be up to 10,000 meals per month. The process specifications requires 0.04 labour hours to check the quality of Lady@Lunch and 0.06 hours to check the quality of all other products. As the management accountant, you have undertaken an analysis using the linear programming model. Based on the analysis, it was found that the contribution-maximising output is to produce and sell 7,400 meals for Lady@Lunch and 5,080 meals for all other products taken together. (i) Determine the shadow price per direct labour hour in the inspection stations. [5 marks] (ii) Discuss the managerial implications of the shadow price. [5 marks] (10 marks)
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Answer rating: 100% (QA)
ANSWER A A shadow price is an estimated price for something that is not normally priced or sold in the market Shadow pricing can provide businesses wi... View the full answer
Related Book For
College Accounting
ISBN: 978-1111528126
11th edition
Authors: Tracie Nobles, Cathy Scott, Douglas McQuaig, Patricia Bille
Posted Date:
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