Q1: Smith Ltd Smith Ltd has three products all of which require the same production facilities. Financial

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Q1: Smith Ltd Smith Ltd has three products all of which require the same production facilities. Financial data on the three products are as follows: Product A B C £ per unit £ per unit £ per unit

Selling price per unit (£) 140 180 240

Variable Cost per unit (£) 80 100 90

Share of fixed overheads 20 20 20

Monthly demand in units (units) 90 100 80

Machine time per unit (hours) 5 10 15

The same machine is used to produce all three products and hence, fixed cost is not affected. Machine time is limited to 850 hours per month. Fixed cost per month is £5,400.

Required
With supported workings, show which combination of products to be produced to achieve the highest profit for the company.
Calculate total contribution and total profit/loss for the company given the best combination of products to be produced.

Q2: Lorient plc Lorient plc has three products all of which require the same production facilities. Financial data on the three products are as follows:

Product X Y Z £ per unit £ per unit £ per unit

Labour: skilled 10 15 20

unskilled 3 6 3 Materials 9 12 15

Variable overheads 8 12 16

Share of fixed overheads 10 15 20

All three of the products use just one raw material, which is the same material for all three products. This material costs £12 a kilo and is scarce, such that the amount of all three products that can be produced falls well below the amounts that the market would take. All labour is a variable cost. Product X is sold in a market where the selling price per unit is fixed at £60.

Required:

Show, with workings and explanations, the price at which the business would need to sell products Y and Z such that it would be equally profitable to produce and sell any one of the three products.