Reference no: EM132827475
Question - Analyze the following case-study - A company manufactures 2 products 'XZ' and 'YZ' using a single production process. The following cost data is available for the same:
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Particulars
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'XZ'
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'YZ'
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Selling price per unit
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Rs 40
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Rs 60
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Variable cost per unit
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Rs 22
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Rs 32
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Machine hours required per unit
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2
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4
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Demand in units
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200000
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500000
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Total machine hours available: 800,000 hours.
Fixed Costs: Rs 52,00,000.
Considering the limiting factors of machine-hours and market demand, you are required to
a) Indicate the best combination of products to give an optimum contribution. Prepare a statement showing a profit at that optimal mix.
b) Show the additional machinery requirement that can be met by renting machines at an annual rent of Rs. 125,000 per machine and providing an additional capacity of 60,000 hours per machine. Also, prepare a Profitability statement if the additional machines are taken on hire.
c) What do you understand by the 'Limiting factor'? How is it relevant for deciding the optimal product mix? What could be the 'limiting factor' in terms of resources for the business?