| Profit Maximisation - Exercise 3.38 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | SOLUTION |
|---|---|---|---|---|---|
| (a) | Total Cost and Profit/Loss per Unit | P | Q | R | Total |
| Selling Price | 40 | 20 | 37 | ||
| Materials | 4 | 5 | 5.5 | ||
| Labour | 22 | 11 | 16.5 | ||
| Total Variable Cost | 26 | 16 | 22 | ||
| Fixed Costs | 12 | 6 | 9 | ||
| Total Cost | 38 | 22 | 31 | ||
| Profit (Loss) | 2 | -2 | 6 | ||
| (b) | Contribution per Unit | ||||
| Selling Price | 40 | 20 | 37 | ||
| Less Variable Costs | 26 | 16 | 22 | ||
| 14 | 4 | 15 | |||
| Contribution per Machine Hour | |||||
| Contribution per Unit | 14 | 4 | 15 | ||
| Machine Hours | 4 | 2 | 3 | ||
| 3.5 | 2 | 5 | |||
| (c) | Profit Calculation | ||||
| Contribution | 70000 | 0 | 105000 | 175000 | |
| Less Fixed Costs | 135000 | ||||
| Profit | 40000 | ||||
| (d) | Order of Priority | 2 | 3 | 1 | |
| (e) | Product Units | ||||
| Time Allocated | 20000 | 4000 | 21000 | 45000 | |
| hours | |||||
| Units Produced | 5000 | 2000 | 7000 | ||
| Units | Units | Units | |||
| (f) | Maximum Total Profit | ||||
| Contribution | 70000 | 8000 | 105000 | 183000 | |
| Less Fixed Costs | 135000 | ||||
| Profit | 48000 | ||||
| (g) | No. Product Q still makes a contribution towards Fixed Costs - notice the | ||||
| increase in profit between (c) and (f). | |||||
| (h) | A further 1,600 units of Product Q will have to be produced at 2 machine | ||||
| hours each, i.e. 3,200 hours. These hours will result in less of Product P | |||||
| being produced, since this shows the next lowest contribution per | |||||
| machine hour. | |||||
| Contribution Gained (Product Q) | 3200 hours @ £2.00 | 6400 | |||
| Contribution Lost (Product P) | 3200 hours @ £3.50 | 11200 | |||
| Reduction in Profit | -4800 |