Question Five

Khan Ltd can render three different types of service ( Alpha, beta and Gamma) using the same staff. Various estimates for nest year have been made as follow:

Service	Alpha	Beta	Gamma
Selling Price ($/unit)	30	39	20
Variable Material Cost ($/unit)	15	18	10
Other Variable Costs($/unit)	6	10	5
Share of fixed cost ($/unit)	8	12	4
Staff time required (hours)	2	3	1

Fixed cost for next year is expected to total 40,000.

Required:

• If the business were to render only service Alpha next year, how many units of the service would it need to provide in order to break even? (Assume for this part of the question that there is no effective limit to market size and staffing level.)
• If the business were to be prepared to render all three services, but has a limited number of staff hours available next year, in which order of preference would the three services come?
• If the maximum market for next year for the three services were as follows:

Alpha 3,000 units

Beta 2,000 units

Gamma 5,000 units

• What quantities of which service should the business provide next year and how much profit would this are expected to yield?