Toor Industries Limited (TIL) is engaged in the production and sale of product Y, which is...

 

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Toor Industries Limited (TIL) is engaged in the production and sale of product Y, which is used in hi-tech industries. The following are the extracts from TIL's latest accounts: Sales Cost of sales Raw material SN37 Rs. in '000 450,000 (171,000) Labour (Rs. 300 per hour) (21,600) Variable overheads (Rs. 325 per hour) (23,400) (216,000) 234,000 Contribution margin TIL's research department has recently developed a product Z which can be produced through further processing of product Y, with the addition of a new raw material, TS38. Other details are as under: (i) Annual demand for Z is estimated at 8,000 kg at a price of Rs. 50,000 per kg. (ii) 0.6 kg of raw material TS38 would be added per kg of Y at the start of further processing. Normal wastage, identified at the start of further processing, would be 20% of the input quantity. Currently, TS38 is available at Rs. 19,200 per kg in the market. (iii) The price of Y is Rs. 25,000 per kg. The introduction of Z would have no impact on the demand for Y. (iv) Further processing would require 2 labour hours per kg of Z produced and can be carried out on the existing machines. (v) The total available labour hours for production are 80,000. During the latest year, the plant worked at 90% of the total production capacity in terms of labour hours. (vi) There are no opening or closing inventories of both products. Required: (a) Assuming that TIL intends to meet the entire demand for the product Z, compute the production quantities of product Y that will be: ■ used in the production of product Z sold without further processing (b) Advice whether TIL should produce product Z. Toor Industries Limited (TIL) is engaged in the production and sale of product Y, which is used in hi-tech industries. The following are the extracts from TIL's latest accounts: Sales Cost of sales Raw material SN37 Rs. in '000 450,000 (171,000) Labour (Rs. 300 per hour) (21,600) Variable overheads (Rs. 325 per hour) (23,400) (216,000) 234,000 Contribution margin TIL's research department has recently developed a product Z which can be produced through further processing of product Y, with the addition of a new raw material, TS38. Other details are as under: (i) Annual demand for Z is estimated at 8,000 kg at a price of Rs. 50,000 per kg. (ii) 0.6 kg of raw material TS38 would be added per kg of Y at the start of further processing. Normal wastage, identified at the start of further processing, would be 20% of the input quantity. Currently, TS38 is available at Rs. 19,200 per kg in the market. (iii) The price of Y is Rs. 25,000 per kg. The introduction of Z would have no impact on the demand for Y. (iv) Further processing would require 2 labour hours per kg of Z produced and can be carried out on the existing machines. (v) The total available labour hours for production are 80,000. During the latest year, the plant worked at 90% of the total production capacity in terms of labour hours. (vi) There are no opening or closing inventories of both products. Required: (a) Assuming that TIL intends to meet the entire demand for the product Z, compute the production quantities of product Y that will be: ■ used in the production of product Z sold without further processing (b) Advice whether TIL should produce product Z.

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Production Quantities and Recommendation for Product Z a Production Quantities Total Available Labor Hours for Z Production Total Available Hours 8000... View the full answer