Pata Ltd. is a small scale company which manufactures three products namely; Xee, Yew and Deez. The company has two departments: Assembly and Machinery which require the same level of labour expertise. The following information relates to the operations of Pata Ltd.:
1. In the period commencing 1 March 2021 and ending 28 February 2021, the company budgeted for:
Fixed overheads (Sh.) 3,000,000
Capacity – Machinery (hr) 50,000
Assembly department (hr) 75,000
2. The standard costs per unit of each product are:
Xee Yew Deez
Selling price 2,000 1,580 2,240
Variable costs: 700 400 800
Direct material 480 320 560
Direct labour – machinery department (Sh.80 per hour) 480 320 560
Assembly department (Sh.60 per hour) 360 390 420
Total variable costs 1,540 1,110 1,780
3. Information in respect to the maximum demand for each product which Pata Ltd. could alternatively source from an independent supplier, for the same quality, is given below
Product Maximum demand (units) Price quoted by external supplier per unit (Sh.)
Xee 3,000 1,750
Yew 2,500 1,400
Deez 5,000 2,000

Required:

(a) Identify and compute the limiting factor for Pata Ltd. (3 marks)

(b) Determine which product(s) should be sourced from the external supplier and the relevant quantities. (4 marks)

(c) Based on your recommendations in (c) above, determine the profits for the period commencing 1 March 2020 and ending 28 February 2021. (3 marks)

Answer rating: 100% (QA)

a The limiting factor for Pata Ltd is the capacity of the Assembly department which is 75000 hours b ... View the full answer