HLS Pte Ltd (HLS) produces high quality silverware. The company currently produces 3 lines of silver...

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HLS Pte Ltd (HLS) produces high quality silverware. The company currently produces 3 lines of silver cutlery: the Harris, the Lewis, and the Skye. There are 3 consecutive stages to producing the cutlery - pressing, fettling and finally engraving. Each involves the use of specialised machinery. HLS operates a just-in-time manufacturing policy: no inventory of closing stocks or work in progress is held. The time taken in minutes on the specialised machines to produce each set of cutlery is as follows: Pressing Fettling Engraving Harris Lewis Skye 3 3 2 5 3 2 2 4 2 The pressing machines cost $1,000 an hour to operate, the fettling machines cost $2,000 an hour and the engraving machines cost $4,000 an hour. Machining costs are 100% variable. There are plenty of machines available and their availability do not limit production in any way. The following relates to the other cost items per set of cutlery: Harris Lewis Skye 300 350 500 12 9 Silver (grams) Labour - 1 worker (minutes) 7 Silver costs $700 per kilogram, and labour is paid $40 per hour. There are 4 skilled craftsmen who each work a 40-hour week for each 4-week month. Overtime is not possible due to trade union constraints, and hiring additional craftsmen with suitable experience is not possible in the short to medium term. Factory overheads amounted to $4,000,000 per annum, and fixed costs are absorbed on a per labour hour. The Harris sells for $1,000 a set, the Lewis sells for $1,200 a set and the Skye sells for $800 a set. Monthly demand is for 2,500 Harris, 3,000 Lewis and 1,000 Skye. An external supplier has approached HLS offering to make cutlery on HLS's behalf for $700 per Harris, $650 per Lewis and $750 per Skye. Required: (a) (b) (c) Use the concepts of relevant costing to calculate the incremental cost to make each product, and the corresponding contribution margin (in $). (6 marks) Calculate a production plan to maximise HLS's contribution margin (in $). Include in your production plan how many of each product HLS should purchase from the external supplier. (15 marks) Describe four (4) qualitative factors HLS should consider before committing to buying- in from the external supplier. (4 marks) HLS Pte Ltd (HLS) produces high quality silverware. The company currently produces 3 lines of silver cutlery: the Harris, the Lewis, and the Skye. There are 3 consecutive stages to producing the cutlery - pressing, fettling and finally engraving. Each involves the use of specialised machinery. HLS operates a just-in-time manufacturing policy: no inventory of closing stocks or work in progress is held. The time taken in minutes on the specialised machines to produce each set of cutlery is as follows: Pressing Fettling Engraving Harris Lewis Skye 3 3 2 5 3 2 2 4 2 The pressing machines cost $1,000 an hour to operate, the fettling machines cost $2,000 an hour and the engraving machines cost $4,000 an hour. Machining costs are 100% variable. There are plenty of machines available and their availability do not limit production in any way. The following relates to the other cost items per set of cutlery: Harris Lewis Skye 300 350 500 12 9 Silver (grams) Labour - 1 worker (minutes) 7 Silver costs $700 per kilogram, and labour is paid $40 per hour. There are 4 skilled craftsmen who each work a 40-hour week for each 4-week month. Overtime is not possible due to trade union constraints, and hiring additional craftsmen with suitable experience is not possible in the short to medium term. Factory overheads amounted to $4,000,000 per annum, and fixed costs are absorbed on a per labour hour. The Harris sells for $1,000 a set, the Lewis sells for $1,200 a set and the Skye sells for $800 a set. Monthly demand is for 2,500 Harris, 3,000 Lewis and 1,000 Skye. An external supplier has approached HLS offering to make cutlery on HLS's behalf for $700 per Harris, $650 per Lewis and $750 per Skye. Required: (a) (b) (c) Use the concepts of relevant costing to calculate the incremental cost to make each product, and the corresponding contribution margin (in $). (6 marks) Calculate a production plan to maximise HLS's contribution margin (in $). Include in your production plan how many of each product HLS should purchase from the external supplier. (15 marks) Describe four (4) qualitative factors HLS should consider before committing to buying- in from the external supplier. (4 marks)

Answer rating: 100% (QA)

a The incremental cost to make each product is as follows Harris 700 1000 2000 4000 7700 Lewis 650 1... View the full answer