Steps for business attempt to improve profitability

Reference no: EM131437789

Question: The management of a business is concerned about its inability to obtain enough fully trained labour to enable it to meet its present budget projection.

Service	Alpha	Beta	Gamma	Total
	£000	£000	£000	£000
Variable costs
Materials	6	4	5	15
Labour	9	6	12	27
Expenses	3	2	2	7
Allocated fixed costs	6	15	12	33
Total cost	24	27	31	82
Profit	15	2	2	19
Sales revenue	39	29	33	101

The amount of labour likely to be available amounts to £20,000. All of the variable labour is paid at the same hourly rate. You have been asked to prepare a statement of plans ensuring that at least 50 per cent of the budget sales are achieved for each service, and the balance of labour is used to produce the greatest profit.

Required:

(a) Prepare a statement, with explanations, showing the greatest profit available from the limited amount of skilled labour available, within the constraint stated. Hint: Remember that all labour is paid at the same rate.

(b) What steps could the business take in an attempt to improve profitability, in the light of the labour shortage?

Reference no: EM131437789

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