| Profit Maximisation - Exercise 3.34 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | SOLUTION |
|---|---|---|---|---|---|
| (a) (i) | Contribution per Unit | X | Y | Z | Total |
| Selling Price | 48 | 70 | 90 | ||
| Less Variable Costs | |||||
| Materials | 4 | 10 | 14 | ||
| Labour | 20 | 30 | 40 | ||
| Overheads | 8 | 12 | 16 | ||
| 32 | 52 | 70 | |||
| Contribution per Unit | 16 | 18 | 20 | ||
| (a) (ii) | Total Contribution | ||||
| Contribution per Unit | 16 | 18 | 20 | ||
| Units | 10000 | 15000 | 20000 | ||
| 160000 | 270000 | 400000 | |||
| Total Contribution | 830000 | ||||
| (a) (iii) | Total Profit | ||||
| Total Contribution | 830000 | ||||
| Less Fixed Costs | 300000 | ||||
| Total Profit | 530000 | ||||
| (a) (iv) | Total Labour Hours | ||||
| Labour Hours | 2 | 3 | 4 | ||
| Units | 10000 | 15000 | 20000 | ||
| 20000 | 45000 | 80000 | |||
| Total Labour Hours | 145000 | ||||
| hours | |||||
| (b) (i) | Contribution per Labour Hour | ||||
| Contribution per Unit | 16 | 18 | 20 | ||
| Labour Hours | 2 | 3 | 4 | ||
| Contribution per Labour Hour | 8 | 6 | 5 | ||
| Order of Priority | 1 | 2 | 3 | ||
| Reason - Ranking is based on the greatest contribution per the limited factor | |||||
| i.e. contribution per labour hour. | |||||
| (c) (i) | Extra Labour Hours | 145000 hours x 40% | |||
| 58000 | hours | ||||
| (c) (ii) | Increase in Contribution | 58000 hours x £8 | |||
| 464000 | |||||
| (c) (iii) | New Total Profit | ||||
| Total Contribution | £830,000 + £464,000 | 1294000 | |||
| Less Fixed Costs | £300,000 + £120,000 | 420000 | |||
| New Total Profit | 874000 | ||||
| (d) (i) | New Contribution for Product X | ||||
| Selling Price | 40 | ||||
| Less Variable Costs | |||||
| Materials | 4 | ||||
| Labour | 20 | ||||
| Overheads | 8 | ||||
| Transport | 2 | ||||
| 34 | |||||
| New Contribution per Unit | 6 | ||||
| New Contribution per Labour Hour | |||||
| New Contribution per Unit | 6 | ||||
| Labour Hours | 2 | ||||
| New Contribution per Labour Hour | 3 | ||||
| Reject Special Order | |||||
| (d) (ii) | Contribution per Labour Hour is less than Contribution per Labour Hour from | ||||
| Product Z. As the firm is working to full capacity it would need to take labour | |||||
| hours away from Product Z to produce the Special Order. |