Wadlington Ltd is a manufacturer of electronics. The global shortage of microchips means that Wadlington Ltd is
Question:
Wadlington Ltd is a manufacturer of electronics. The global shortage of microchips means that Wadlington Ltd is unable to operate its production facilities at full capacity. As a result, the company’s management has to decide how many of its three products to schedule for production in the upcoming year.
The following information about its products is available:
Product E | Product F | Product G | |
Market demand for the product (units) | 180,000 | 210,000 | 160,000 |
Number of microchips (per unit) | 3 | 4 | 2 |
Selling price (per unit) | $470 | $620 | $510 |
Cost of microchips (per unit)* | $87 | $116 | $58 |
Other variable costs (per unit) | $230 | $290 | $280 |
Direct fixed costs** | $23 million | $38 million | $14 million |
Notes:
* The cost of each microchip is $29
** If production for a product ceases, then some direct fixed costs will still be incurred in the foreseeable future. This unavoidable cost is $7 million for Product E, $18 million for Product F, and $6 million for Product G.
Also, note that common fixed costs are an additional $9 million.
Required:
(a) Suppose Wadlington Ltd’s suppliers are only able to provide up to 1,400,000 microchips for the upcoming year. How many units of each product should be produced to maximize the company's profit? Show your workings.
(b) Identify and briefly explain two other factors that Wadlington Ltd’s management should consider.
Accounting Information Systems
ISBN: 9780132871938
11th Edition
Authors: George H. Bodnar, William S. Hopwood