| Profit Maximisation - Exercise 3.33 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | SOLUTION |
|---|---|---|---|---|---|
| (a) (i) | Variable Cost per Unit | X | Y | Z | Total |
| Materials | 10 | 25 | 25 | ||
| Labour | 24 | 16 | 8 | ||
| Variable Overhead | 6 | 4 | 2 | ||
| Total Variable Cost | 40 | 45 | 35 | ||
| (a) (ii) | Total Cost per Unit | ||||
| Variable Cost | 40 | 45 | 35 | ||
| Fixed Overhead | 3 | 3 | 3 | ||
| Total Cost | 43 | 48 | 38 | ||
| (a) (iii) | Contribution per Unit | ||||
| Selling Price | 50 | 60 | 80 | ||
| Less Variable Costs | 40 | 45 | 35 | ||
| Contribution per Unit | 10 | 15 | 45 | ||
| (b) | Profit Statement - Year 6 | ||||
| Sales | 200000 | 300000 | 480000 | ||
| Less Total Cost | 172000 | 240000 | 228000 | ||
| Profit | 28000 | 60000 | 252000 | 340000 | |
| (c) | Effect of Closure of Dept X | ||||
| Contribution per Unit | 15 | 45 | |||
| Unit Sales | 5000 | 6000 | |||
| Total Contribution | 75000 | 270000 | 345000 | ||
| Less New Fixed Costs | 36000 | ||||
| New Profit | 309000 | ||||
| Change in Profit | -31000 | ||||
| Do not close Department X as the Profit will be reduced by £31,000. | |||||
| (d) (i) | Contribution per Kg | ||||
| Contribution per Unit | 10 | 15 | 45 | ||
| Material per Unit | 2 | 5 | 5 | ||
| Contribution per Kg | 5 | 3 | 9 | ||
| Order of Production | 2 | 3 | 1 | ||
| Department Y will reduce production by 1400 Units (7000 kgs / 5 kgs) | |||||
| (d) (ii) | Effect on Profit | ||||
| Reduction in Production | 1400 | ||||
| Contribution per Unit | 15 | ||||
| Reduction in Profit | 21000 | ||||
| OR | |||||
| Effect on Profit | |||||
| Reduction in Kgs | 7000 | ||||
| Contribution per Kg | 3 | ||||
| Reduction in Profit | 21000 |