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EVP Analysis and Decision Making M07 The Key Factor-Differing Feed Costs at various Capacity Level The relevant data of Lidl for its three products A B and C as under Particulars sect Material per unit) Direct Labour per unit) riable Overheads per unit) Selling Price per unit) Laachine Hours Required (per unit) 260 130 110 860 12 300 270 230 1,040 6 200 200 100 930 3 Saimated Fixed OH at four different levels of 1.600, 6.000, 8,409 and 10,000 machine hours are 1,00,000, 2, 1.50,000, C2,20.000 and 1.00,000 respectively. The musical de la conta dan in sosta period are soo, Joo and 1,000 units vespectively Mourare required to find out the most prestand der andechonde in den let, andreas the vervell of activity where the profit would be maximum Solution: B 1,040 7930 1. Contribution Analysis Particulars A Selling Price per unit 860 (b) Variable Costs per unit Direct Material 3260 Direct Labour 130 Variable Overheads 7110 Sub-Total 7500 Contribution per unit (a - b) 360 (d) Machine Hours Required per unit 12 hours 30 Contribution per Machine Hour (c=0) I11 "Ranking 500 units Maximumn Demand Quantity (given) 6,000 hours Time required for maximum demand (9 x d) 300 3270 230 800 *240 6 hours 740 II 300 units 1,800 hours 2250 7260 180 3690 *240 3 hours 380 1 1,800 units 5,100 hours 2. Machine Hours Allocation (based on Ranks) and Product Mix at different capacity levels Hrs 3,600 hours 6,000 hours 8,400 hours 10,800 hours Product Hrs Qtty Hrs Qtty Hrs Qtty Hrs Quty 3,600 3,600 = 3 Max 5,400-3 Max 5,400 = 3 Max 5,400 - 3 = 1,200 units 5,400 = 1,800 units 5,400 = 1,800 units 5,400 1,800 units b/f = 600 = 6 Max 1,800 = 6 Max B 1,800 + 6 = 100 units 1,800 = 300 units 1,800 = 300 units bff = 1,200 - 12 b/f = 3,600 12 A 1,200 = 100 units 3,600 = 300 units Total 3,600 6,000 8,400 10,800 600 10,800 hours 3. Profit Statement at different capacity levels Capacity Hours 3,600 hours 6,000 hours 8,400 hours D) Contribution from Product A Nil Nil 100 units x 360 = 36,000 Product B Nil 100 units x 240 300 units x 240 = 24,000 = 372,000 Product C 1,200 units x 240 1,800 units x 240 1,800 units x 240 = 32,88,000 = 4,32,000 = 34,32,000 Sub-Total 2,88,000 4,56,000 5,40,000 Fixed Costs 31,00,000 1,50,000 2,20,000 Profit (a - b) 1,88,000 3,06,000 3,20,000 Decision: Optimum Capacity Level is 8,400 hours, in order to maximize profits. 300 units x 360 = 1,08,000 300 units x 240 = 72,000 1,800 units x 240 = 4,32,000 6,12,000 33,00,000 3,12,000 9.107 Gluring the year under review Stequired view of the aforesaid production capacity constraints, the Company has decides to grada, only one to press of units of that product and the resultant contribution Which of the two products should to produced and in the year review this profit? So the mic The surplus capacity available in Department of Departs ar machine of a stora Decis proposed to be hired out to cam a contribution of per hour in the Department and perher info of Department B. prepare a statement to show whether Aristocrator Det show become the Total Contribution Calculate soch total contribution + The Company has been advied to produce en unes et each product and stative me the surpis capaceye Department A andlor Department Bureau de la fel de prendre la prepa breased analysis showing the total contribution for the year Solution: 1. Computation of Maximus Ponsible Products and Contribution Particulars a) Possible Production based on Aristocrat Data 0) Raw Material avality 17.000 2.500 Department A time ty 2.000 trs 05.00 1400 hus 1333 () Department tome ty 2,840 94 9,800 (W) Sales Demand restriction (0) Cflective Production Quartal Dept African Brits -laa Selling Price 30 d) Variable Corts. Materials (52 (6) VOH Department at sapta Departmentah (0.0 hes +60) Sao Total War Couts pu (e) Contribution 25 Possible total contribution foxel 22.10.200 22.30 Decision The Company produce 3.500s of Dato profit. Mam Carton 23.00 2A. Effect of Piring out Surplus Capacity When 100 units of When 3.500 units ad Deum Particulars Aristocrat is produced produced Dept A Depes Deept A Dets OSTE 40 hours (6) Hours required perant 30 6,800 02:50 20) Time utilised for 6.300 and 3.500 2.550 Tatal Time Available (e) 3.000 ha 3,840 hours 3.5 hours 1.120 mars Bohet (d) Spare Capacity (c-b) 15 hours 100 Fle) eve Income to respectively 334 900 Deluxe 228. 20. Revised Income Statement Particulars Aristocrat a) Contribution from Products as per acowe 22.10,800 (D) Hire Revenue from Sumlus Capacity (2) 20) Total Income (a + D) *2.78,000 Decision: la this case, destocrat sold be preferred Secreasing Xocive 72,72.900 Mudily Particulars Reimbursement at 60 por hour for unus hours d) Tetat Cordon (h) PA Part 2hrs 1,20,00 1.39,063 #95, M 06 Direct Raw Material Direct Wages i 8 per hour in Departments Bonclusion at may be puodesto me the 1,03,290 to a tuttiple Key Factor - Product Mix Decision call for p 200 personit of Xande 2 pereitet standard est da Company manufactures to products and The Coo's Fed Cat Lakhs These products are Particular Pipium Produd y 09 16 24 272 1 24 12 3 96 12 20 Wartable Overtuada Department Sumber of Workers 1 Dept. 1 4 Company operatus 3 hours a tee 300 days in a year ander werk engaged to sich department is 4 27 How many units of each product the samutated and what is the resultantem, if cumbers of employees cannot be better? only one product is to be actured by the Company, which products was the mood and what is the amount of such it? What will be the productos decision Raw Material is restricted to and only one product is to be sad? Solution 1. Cory tation of time required per unit and maximum possible production Product Product Total Avabe DLN Hrs regd Pasi Prodin Hesus Prodes P4 Otsus 12 6 hours 000 nits 57.000 hrs 2 * 200* 24.600 - 3 hours 19200 units 728 Ohes De 3 2200 units 1968 36.00 12 8 x 300 343 12 hours 1.200 units Total Mouns required 10 roup Som the above, thered the possible output of Products 7,200 meses contra in Department and for Praded the possible outpuis 7.200 ns (dato constraints wp.) 2. Evaluation of Alternatives and Determination of Possible Production Quantity Scopted to 7,200 nits from above the following alternatium are att Alternative 1. Produce 7.200 units Product and use the balans capacity for grosion of PSY Ahernative 2: Preduce 2.200 of foar and use the balance capacity for production of Pax Production Plans der Alternative 1 Particulars Degt! Dept 2 Dept 3 Dept 4 Totad lahe DH 163.000 52.60 36,00 2.2006 7,200 x 3 De required for 2.200 units of X 3.200 21.600 54 800 Balance DLH Valea- 54.800 36,000 13 35.000 6 Balance possible production of Product Y 2,200 units 6,000 units Hence, effective production under Alternate labes 7.200 ns of Xand 6.600s of least of all