ABC Ltd. Manufacture a single product and selling price per unit is $750. The manufacturing cost per unit is given below:

 

Cost Per Unit
Materials
Direct Materials A	250g @ 1,000 per kg
Direct Materials B	750g @ $400 per kg
Direct Materials C	1 unit @ $25 per unit
Labour
Skilled Labour	5 minutes @ $240 per hour
Unskilled Labour	10 minutes @ $150 per hour
Overheads
Variable overheads	$30

 

Total Fixed Overheads for a month is $2,880,000 and are absorbed based on machine utilization.

 

XYZ Ltd. Has received an order from a new customer to supply 4,000 units of products XYZ at $600 each before end of the current month and the following additional information is given: -

 

1. Material A will have an excess stock of 1,500 kg of material which will expire by end of the current month.
2. The available stock of direct material B is only enough for the intended output, and the next delivery from the regular suppliers won't arrive until the following month.  Direct material B will have to be purchased at $500 per kg if the new customer's order is accepted.
3. Skilled labor is only sufficient to meet existing production levels, and any extra time must be compensated with a $120 per hour overtime premium.

Required: 

Access whether the order of the new customer should be accepted. 

 

 

Question 2

 

Pineapple Ltd makes three products Whiskey and Vodka and Tequila. Unit variable cost are as follows:

	Rum $	Whiskey $	Wine $
Direct Materials	36.00	45.00	60.00
Direct labour	60.00	90.00	120.00
Variable Overhead	15.00	30.00	60.00
Fixed Cost	15.00	30.00	45.00
Selling Price	240.00	300.00	540.00

 

All three products pass through the same production departments. Fixed overheads are $9,000,000.00

 

	Rum	Whiskey	Wine
Materials per unit ($1 per kg)	12	15	20
Budgeted production per month	21,000	36,000	51,000

 

Production of the three products is limited by materials.  There are only $1,650,000.00 available per month.

 

Required:

Determine the mix of products that will maximize profit, there is no opening inventory of finished goods or work in progress.

Answer rating: 100% (QA)

For Question 1 To assess whether the new customers order should be a... View the full answer