Vyvyboat Limited makes three furniture products - chair, bench and table - all of which use...

 

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Vyvyboat Limited makes three furniture products - chair, bench and table - all of which use the same machine, which is available for 100,000 hours per annum. The budgeted unit cost and resource requirements of each item is detailed below. Product Chair Bench GHS 12 Direct materials Direct wages: Machinists (GHS8 per hour) Assemblers (GHS6 per hour) Variable overheads 24 6 5 65 12,000 GHS 10 16 6 8 Selling price per unit Expected sales (units) The fixed overhead costs are GHS600,000 per annum. The company is considering the following options. Option A Use the existing machine hours to make the maximum profit available. 64 16,000 Table GHS 15 32 9 6 82 18,000 Option B Increase the labour rate for machinists to GHS9.00 per hour. This would attract additional machinists and the company would be able to increase production to meet the expected sales. The labour rate would be payable to all machinists for the whole year. Required a) Calculate the expected maximum profit under Option A b) Calculate the expected maximum profit under Option B c) Recommend which option, if any, the company should adopt giving reasons for your answer. Vyvyboat Limited makes three furniture products - chair, bench and table - all of which use the same machine, which is available for 100,000 hours per annum. The budgeted unit cost and resource requirements of each item is detailed below. Product Chair Bench GHS 12 Direct materials Direct wages: Machinists (GHS8 per hour) Assemblers (GHS6 per hour) Variable overheads 24 6 5 65 12,000 GHS 10 16 6 8 Selling price per unit Expected sales (units) The fixed overhead costs are GHS600,000 per annum. The company is considering the following options. Option A Use the existing machine hours to make the maximum profit available. 64 16,000 Table GHS 15 32 9 6 82 18,000 Option B Increase the labour rate for machinists to GHS9.00 per hour. This would attract additional machinists and the company would be able to increase production to meet the expected sales. The labour rate would be payable to all machinists for the whole year. Required a) Calculate the expected maximum profit under Option A b) Calculate the expected maximum profit under Option B c) Recommend which option, if any, the company should adopt giving reasons for your answer.

Answer rating: 100% (QA)

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