Question 3: Product mix with constraint resources (chapter 10) Master bed Ltd manufactures three types of mattresses- traditional foam mattresses, latex foam mattresses and memory foam mattresses. The selling price, variable costs, and contribution margin for one mattress of each type are given in the below table: Mattress type Traditional foam Latex foam Memory foam Selling price $275 $350 $450 Variable costs: Direct material (foam) $48 $36 $60 Direct labour $30 $40 $50 Other variable costs $79 $149 $169 Contribution margin $118 $125 $171 The business uses standard foam for all mattresses, but they are further processed to produce latex foam and memory foam. The business currently has only 3000 cubic meters of standard foam and these materials are bought at $12 per cubic meter. Due to some union action in the foam manufacturing industry in Australia, the business is not able to order new material for a few weeks. The production manager wants to know how to assign available stock across three different products to maximise contribution margin. The business has to produce a minimum of 100 mattresses and a maximum of 400 mattresses of each product to meet the demand. Required: a). Compute the contribution margin per foam cubic meter of each type of mattress. (6 marks) (refer to lecture 7, exercise 10.11) b). How many units of each type of mattress should Master Bed produce to maximise the contribution margin? Show the total contribution from each product line and the total contribution. (10 marks) c). There is a special order for 300 traditional foam mattresses that need to be delivered within two weeks. Purchasing manager confirmed that they can purchase foam from a New Zealand supplier, but the price is a bit higher. What is the highest price that the Master Bed should be willing to pay for the material per cubic meter? (4 marks) Question 4: Standard costing and variance analysis (chapter 15 & 16) Last year, you started a new garden maintenance service including fertilisation. In the first year, you have serviced 70 clients. For each client, you need to do five applications of fertilising during the year. For each client, two applications involve Chemical X, and three applications involve Chemical Y. At the beginning of the year, you had estimated the following budgeted figures: 0 90 Clients 0 Chemical purchase price- Chemical X 50.60 per kg, Chemical Y $0.52 per kg 0 Chemical usage- 40 kilogram per spraying for each X and Y applications. - Budgeted wage rate per employee - $30 per hour 0 Labour time per application per client 40 minutes You purchase Chemical X 5000 kg at S 0.63 per kilogram and Chemical Y 10 000 kg at $0.50 per kilogram. The actual amount of Chemical usage is 3 700 and 7 400 kilograms, respectively. You have hired Rob to spray the fertilizer. You paid $32.50 per hour to Rob due to the hot weather, and Rob worked a total of 160 hours during the year. Unfortunately, you have received a large number of complaints from your client during the year. Required: a). Calculate the direct material price and usage variances for each type of fertiliser. (10 marks) (refer to lecture 6, lecture example and exercise 15.16) b). Calculate the static-budget variance, the flexible-budget variance, and the rate and efficiency variances for direct labour. (10 marks) c). Consider the variances that you calculated in parts (a) & (b), what seems to have happened that gave rise to customer complaints