| Profit Maximisation - Exercise 3.41 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | SOLUTION |
|---|---|---|---|---|---|
| (a) (i) | Variable Overhead Cost per Unit | ||||
| £150,000 x 40% = £60,000 / 30000 Units | 2 | ||||
| (a) (ii) | Total Variable Cost per Unit | ||||
| Direct Materials | 8 | ||||
| Direct Labour | 5 | ||||
| Variable Overhead | 2 | 15 | |||
| (a) (iii) | Contribution per Unit | ||||
| Selling Price | 20 | ||||
| Less Variable Cost | 15 | ||||
| 5 | |||||
| (b) (i) | Total Contribution | ||||
| Contribution per Unit | 5 | ||||
| Units | 30000 | ||||
| 150000 | |||||
| (b) (ii) | Total Profit | ||||
| Total Contribution | 150000 | ||||
| Less Fixed Costs (£150,000 x 60%) | 90000 | ||||
| 60000 | |||||
| (b) (iii) | Total Labour Hours at Full Capacity | ||||
| 120,000 /80 x 100 | 150000 | ||||
| hours | |||||
| (c) | Option 1 | ||||
| New Contribution (£19 - £15) | 4 | ||||
| Total Contribution (30000 units x 125% = 37500 Units x £4) | 150000 | ||||
| Less Fixed Costs (£90,000 + £8,000) | 98000 | ||||
| Profit | 52000 | ||||
| Option 2 | |||||
| Special Order Contribution (£18 - £16) | 2 | ||||
| Contribution of Product A | 150000 | ||||
| Contribution of Special Order (£2 x 7500 units) | 15000 | ||||
| Total Contribution | 165000 | ||||
| Less Fixed Costs | 90000 | ||||
| 75000 | |||||
| Option 3 | |||||
| Spare Capacity (150000 hours - 120000 hours) | 30000 | ||||
| hours | |||||
| Product B Units (30000 hours / 6 hours) | 5000 | ||||
| Units | |||||
| Contribution of Product A | 150000 | ||||
| Contribution of Product B (£30 - £24 = £6 x 5000 units) | 30000 | ||||
| Total Contribution | 180000 | ||||
| Less Fixed Costs (£90,000 x 110%) | 99000.00000000001 | ||||
| 80999.99999999999 | |||||
| Option 3 should be chosen as this makes the highest profit. | |||||
| (d) | Contribution per Unit | A | B | C | Total |
| Selling Price | 19 | 32 | 35 | ||
| Less Variable Costs | 15 | 20 | 25 | ||
| 4 | 12 | 10 | |||
| Labour Hours | 4 | 6 | 2 | ||
| Contribution per Labour Hour | 1 | 2 | 5 | ||
| Order of Priority | 3 | 2 | 1 | ||
| Hours Available | 94000 | 48000 | 8000 | 150000 | |
| hours | |||||
| Profit Statement | |||||
| Total Contribution | 94000 | 96000 | 40000 | 230000 | |
| Less Fixed Costs | 110000 | ||||
| Profit Maximised | 120000 |