| Profit Maximisation - Exercise 3.36 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | SOLUTION |
|---|---|---|---|---|---|
| (a) (i) | Contribution per Unit | A | B | C | Total |
| Selling Price | 25 | 60 | 21 | ||
| Less Variable Costs | |||||
| Materials | 10 | 15 | 5 | ||
| Labour | 9 | 18 | 6 | ||
| Overheads | 3 | 6 | 2 | ||
| 22 | 39 | 13 | |||
| Contribution per Unit | 3 | 21 | 8 | ||
| (a) (ii) | Contribution per Kg of Material Used | ||||
| Contribution per Unit | 3 | 21 | 8 | ||
| Kg | 4 | 6 | 2 | ||
| 0.75 | 3.5 | 4 | |||
| (a) (iii) | Contribution per Direct Labour Hour | ||||
| Contribution per Unit | 3 | 21 | 8 | ||
| Labour Hours | 1.5 | 3 | 1 | ||
| 2 | 7 | 8 | |||
| (b) (i) | Total Number of Hours Needed | ||||
| Units Demanded | 15000 | 10000 | 20000 | ||
| Labour Hours | 1.5 | 3 | 1 | ||
| 22500 | 30000 | 20000 | |||
| Total Hours Required | 72500 | ||||
| hours | |||||
| (b) (ii) | Total Quantity of Material Needed | ||||
| Units Demanded | 15000 | 10000 | 20000 | ||
| Kg | 4 | 6 | 2 | ||
| 60000 | 60000 | 40000 | |||
| Total Kg Required | 160000 | ||||
| kg | |||||
| (c) | Benton Plc cannot meet the expected annual demand for all products because | ||||
| there is a shortage of materials. | |||||
| (d) | Contribution per Kg of Material Used | 0.75 | 3.5 | 4 | |
| Order of Priority | 3 | 2 | 1 | ||
| Kgs Used | 20000 | 60000 | 40000 | 120000 | |
| kg | |||||
| Quantity Produced (Units) | 5000 | 10000 | 20000 | ||
| (e) | Maximum Profits | ||||
| Units | 5000 | 10000 | 20000 | ||
| Contribution | 3 | 21 | 8 | ||
| Total Contribution | 15000 | 210000 | 160000 | 385000 | |
| Less Fixed Costs | 300000 | ||||
| Maximum Possible Profit | 85000 | ||||
| (f) (i) | New Contribution | ||||
| Selling Price | 17 | ||||
| Less Variable Costs | 13 | ||||
| New Contribution | 4 | ||||
| Total Contribution for Special Order | |||||
| Contribution | 4 | ||||
| Units | 13000 | ||||
| 52000 | |||||
| 13000 Units x 2 kg = 26000 kgs needed from Product A and Product B | |||||
| 20000 kgs will come from Product A | |||||
| 6000 kgs will come from Product B | |||||
| Loss of Contribution from Product A | 15000 | ||||
| Loss of Contribution from Product B | 21000 | ||||
| (1000 units x £21) | |||||
| Total Contribution Lost | 36000 | ||||
| Total Contribution Gained from Special Order | 52000 | ||||
| Change in Total Profit | 16000 | ||||
| (f) (ii) | Benton Plc should accept the order, because total profit is increased. | ||||
| (f) (iii) | Product C (Special Order) | 13000 units x 1 hr | 13000 | ||
| Less Product A | 5000 units x 1.5 hrs | 7500 | |||
| Less Product B | 1000 units x 3 hrs | 3000 | |||
| 2500 | |||||
| hrs | |||||
| Employment is increase by 2500 hours. |