Fred manufactures a number of wood products including a cutting board that is sold by several large department stores. The sales manager believes that the product should be upgraded and sold exclusively in high-end stores that focus on kitchenware. Per unit characteristics of the existing product and new product are shown in table 01. The significantly higher profit per unit of the proposed product is what has caused the sales manager to promote the change. Determine the production plan that would maximise profit in the following period, if the available direct operatives' hours total 26,400. Existing Product Proposed Product Price 20.00 35.00 Direct materials 3.00 5.00 Labour 6.00 12.00 3 Selling 1.00 1.75 Manufacturing OH 4.50 14.50 7.50 26.25 Per unit profit 5.50 8.75 Additional information provided by Fred's accountant indicates that all workers are paid a flat wage irrespective of the number of hours that they work. Labor costs are charged to products at the rate of $24 per hour. Selling costs are 5% of the product price and overhead is charged to products at 150% of direct materials costs. Variable manufacturing overhead costs are about 10% of direct materials costs. Because of the commitments to make other products, the maximum number of labor hours that can be used to produce cutting boards is 10,000.

Answer rating: 100% (QA)

To determine the production plan that maximizes profit for Freds cutting boards we need to analyze the profit per unit and the labor hours required fo... View the full answer