PK Ltd manufactures four types of mobile phones which all use goggles, a component made in only

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Question:

PK Ltd manufactures four types of mobile phones which all use “goggles”, a component made in only one factory. Each goggle costs $50 to purchase. Due to a prolonged strike in the goggle factory, PK Ltd will only be able to purchase 20,000 goggles this year. The following information relates to each type of mobile manufactured by PK Ltd:

Mobile A Mobile B Mobile C Mobile D Maximum demand(units) 11000 3000 3500 700 Cost per mobile: $ $ $ $ Goggle 50 100 200 350 Other direct materials 30 80 98 300 Direct Labour 30 40 30 55 Fixed Costs 60 80 40 70 Profit per mobile 50 70 52 490 Selling Price per mobile 220 370 420 1265

(a) Calculate the numbers of each type of mobile to be produced and sold that would maximize the profit of PK Ltd.

(b) Prepare a Marginal Income Statement showing the profit for the year. PK Ltd has been approached by an outside supplier who can supply any of the four mobile phones at a cost of 80% of PK Ltd’s selling price.

(c) Calculate the overall profitability if PK Ltd wants to supply all the four types of mobile phones at normal capacity.

3d) Identify and explain two issues which PK Ltd should take into account when buying ready-made mobiles from an outside supplier.

(e) PK Ltd has a normal credit period of 55 days. The new policy of company is to allow a discount of 3% for payment within 12 days. The company operates a bank overdraft at 16.5% per annum. You are required to calculate the cost of the discount for Rs100 sales and advise if any.