Pastels Ltd produces three brush sets; the artists set, the painters set and the make-up set.    

The following data for each brush is available for the next quarter:

Demand sets (units)	150	300	350
	Artist	Painters	Make up
	£	£	£
Sale Revenue per unit	43	35	25
Variable costs per unit	37	27	16
Allocated Fixed costs per unit	7	2	4
Profit per unit	(1)	6	5

2a) The assistant accountant has suggested that the Artist line be closed. Do you agree?  Give reasons for your opinion.	5 marks
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All brush sets use animal hair as follows:

	Artist	Painters	Make up
Hair per set (grammes)	12	20	36

2b) The supplier for animal hair has gone bankrupt and supply will be affected for the next quarter. With reference to the above explain the concept of a limiting factor.

2 marks

2c) The inventory manager has told you that there is only 7,600 grammes of animal hair in the warehouse.  How much of each product should be made?	6 marks
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2d) What is the maximum profit that Pastels Ltd could make given your calculations in part 2c?	4 marks
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2e) State the total maximum price that Pastels would be prepared to pay a competitor for any animal hair inventory they have, in order to fulfil demand for the quarter.	5 marks
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2f) Discuss two qualitative (non-financial factors) the company should consider when sourcing animal hair from overseas suppliers.	4 marks
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2g) The company intends to buy a machine to help speed up production. Discuss how and why this could affect costs and profits.

Answer rating: 100% (QA)

2a To determine whether the Artist line should be closed we need to compare the profit contribution of the Artist line with the other two lines The profit per unit for the Artist line is negative 1 wh... View the full answer