Usine Ltd is a company whose objective is to maximize profits. It manufactures two specialty chemical powders,
Question:
The following are the estimated production hours for each process per kilo of output for each of the two chemical powders during the period 1 June to 31 August:
During the same period, revenues and costs per kilo of output are budgeted as
It is anticipated that the company will be able to sell all it can produce at the above prices, and that at any level of output fixed costs for the three month period will total £36 000.
The company's management accountant is under the impression that there will only be one scarce factor during the budget period, namely blending hours, which cannot exceed a total of 1050 hours during the period 1 June to 31 August. He therefore correctly draws up an optimum production plan on this basis.
However, when the factory manager sees the figures he points out that over the three-month period there will not only be a restriction on blending hours, but in addition the heating and refining hours cannot exceed 1200 and 450 respectively during the three month period.
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