| Profit Maximisation - Exercise 3.35 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | SOLUTION |
|---|---|---|---|---|---|
| (a) (i) | Contribution per Unit | A | B | C | Total |
| Selling Price | 24 | 35 | 45 | ||
| Less Variable Costs | |||||
| Materials | 2 | 5 | 7 | ||
| Labour | 10 | 15 | 20 | ||
| Overheads | 4 | 6 | 8 | ||
| 16 | 26 | 35 | |||
| Contribution per Unit | 8 | 9 | 10 | ||
| (a) (ii) | Total Contribution | ||||
| Contribution per Unit | 8 | 9 | 10 | ||
| Units | 10000 | 15000 | 20000 | ||
| 80000 | 135000 | 200000 | |||
| Total Contribution | 415000 | ||||
| (a) (iii) | Total Profit | ||||
| Total Contribution | 415000 | ||||
| Less Fixed Costs | 150000 | ||||
| Total Profit | 265000 | ||||
| (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 | 8 | 9 | 10 | ||
| Labour Hours | 2 | 3 | 4 | ||
| Contribution per Labour Hour | 4 | 3 | 2.5 | ||
| 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 £4 | |||
| 232000 | |||||
| (c) (iii) | New Total Profit | ||||
| Total Contribution | £415,000 + £232,000 | 647000 | |||
| Less Fixed Costs | £150,000 + £60,000 | 210000 | |||
| New Total Profit | 437000 | ||||
| (d) (i) | Labour Hours Available | Old Hours + New Hours | |||
| 145000 hours + 58000 hours | |||||
| 203000 | hours | ||||
| Labour Hours Required | |||||
| Labour Hours | 2 | 3 | 4 | ||
| Maximum Sales | 20000 | 30000 | 24000 | ||
| 40000 | 90000 | 96000 | |||
| Labour Hours Required | 226000 | ||||
| hours | |||||
| Labour Hours Allocated | 40000 | 90000 | 73000 | 203000 | |
| hours | |||||
| New Quantities | |||||
| Labour Hours Allocated | 40000 | 90000 | 73000 | ||
| Labour Hours per Unit | 2 | 3 | 4 | ||
| New Quantities (Units) | 20000 | 30000 | 18250 | ||
| (d) (ii) | Total Contribution | ||||
| Contribution per Unit | 8 | 9 | 10 | ||
| New Quantities (Units) | 20000 | 30000 | 18250 | ||
| 160000 | 270000 | 182500 | |||
| Total Contribution | 612500 | ||||
| (d) (iii) | Total Profit | ||||
| Total Contribution | 612500 | ||||
| Less Fixed Costs | (150000 + 50000) | 200000 | |||
| Total Profit | 412500 | ||||
| (e) (i) | New Contribution for Product A | ||||
| Selling Price | 20 | ||||
| Less Variable Costs | |||||
| Materials | 2 | ||||
| Labour | 10 | ||||
| Overheads | 4 | ||||
| Transport | 1 | ||||
| 17 | |||||
| New Contribution per Unit | 3 | ||||
| New Contribution per Labour Hour | |||||
| New Contribution per Unit | 3 | ||||
| Labour Hours | 2 | ||||
| New Contribution per Labour Hour | 1.5 | ||||
| Reject Special Order | |||||
| (e) (ii) | Contribution per Labour Hour is less than Contribution per Labour Hour | ||||
| from Product C. As the firm is working to full capacity it would need to | |||||
| take labour hours away from Product C to produce the Special Order. |