Something More Ltd. is considering addition to its product line. After a lot of deliberations between the sales and production personnel, it is decided that products P, Q and R would be the most desirable additions to be company’s product range on account of the technical competency, marketing potential and production flexibility as regards these products. In fact P, Q and R can all be made on the same kind of plant as that already in use and therefore as regards production, all products can be readily interchanged. However, it is considered necessary to build further plant facilities to cater for additional production. in this connection the following data are relevant:

Products (Per Unit)	P	Q	R
Direct Materials	100	120	90
Direct Labour	50	70	90
Overheads	50	130	100
Selling Price	350	420	370
Demand in units per cost period (based on the above selling price)	200	125	750
Machine hours required per unit of production	15	5	3

It is felt that initially extra plant facilities can be built to operate at the following five different levels of activity, viz., 1,800; 2,300; 2,800; 3,300 and 3,800 machine hours per cost period. The fixed overhead costs for a cost period relevant to these five different levels of activity are estimated at Rs.15,000; Rs.20,000; Rs.26,000; Rs.33,000 and Rs.39,000 respectively.

You are required to advise, with supporting figures, the product or products to be manufactured and in what quantities at each of the five contemplated levels of activity, in order to maximize the profits at each level and also indicate the level of activity that would seem most desirable to be pursued for such maximization of profits.

Answer rating: 100% (QA)

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