Determine the single limiting factor, Cost Accounting

Assignment Help:

Determine the Single Limiting Factor

A company manufactures and sells three products as A, B and C. The unit cost and revenue structure for every product and its maximum forecast demand for the coming period are given as:

Product

A

B

C

Selling price per unit (Shs.)

140

100

120

Variable cost per unit (Shs.)

  70

  60

  80

Maximum demand (units)

500

300

300

Machine hours required per unit

  10

    4

   5

The company has a maximum of 6000 machine hours available throughout the coming period

Required

1. Estimate the number of units of each product A, B, and C that should be produced and sold in order to maximize profit

2. Estimate the maximum profit earned from the decision strategy per 1

3. Suggest other factors that management may wish to consider such could result in a change in their decision

4. Estimate the product units to be produced and sold and the net profit earned whether the company wishes to maximize sales of product A since it is thought to be a future market leader

5. Estimate the product units to be sold and the net profit earned it the company agrees to produce a minimum of 70 percent of the maximum demand of every product in order to maintain market spread.

Solution

 

A

B

C

Total

Maximum demand (units)

       500

  300

  300

 

Machine hours per unit

   10

    4

    5

 

Machine hours required

5000

1200

1500

7700

Machine hours available

 

 

 

6000

Shortfall

 

 

 

1700

The specified calculation confirms that machine time is a limiting factor that will restrict the number of products that can be produced and sold

Product

A

B

C

Total

Contribution per unit (Shs.)

70

40

40

 

Contribution per machine hr (Shs.)

70

10

8

 

Product ranking

(3)

(1)

(2)

 

Machine hours utilized

3300

1200

1500

 

1.    Product units produced and sold

330

300

300

 

       Contribution earned (Shs.)          

23100

12000

12000

47100

       Less fixed cost

 

 

 

20000

2.    Net profit            

 

 

 

22710

 

3.  The profit maximizing mix may not be implemented where management wish to keep a more balanced market mix or wherever they wish to concentrate on a future market leader. In addition they may wish to explore the possibility of sub contracting some production or of acquiring additional machinery either part of a long term expansion of capacity or on hire

4. Where the sales of product A are to be maximized since it is considered that it will be a future market leader, the analysis sequence is as:

a) Employ the machine hours essential to maximize production of A that is 500 units x 10 hour = 5000 hours

b) Employ the keeping 1000 machine hours to produce B and C in their ranking order

Product B has a higher contribution per machine hour. The 1000 machine hours available are enough to produce 1000/4 = 250 units of B. It is less than its maximum demand. There are no hours left in that to produce product C. Therefore the sales and profit strategy is as:

 

Units

Contribution per unit Shs.

Total

Product A

500

70

35000

Product B

280

40

10000

Product C

Nil

 

 

 

 

 

45000

Less fixed cost

 

 

20000

Net profit

 

 

25000

 

5. Where sales have to be spread in order to satisfy 70 percent of the maximum demand of every product like the first criterion the analysis sequence is

a) Employ the machine hours required to produce 70 percent of the maximum production of every product

b) Employ the residual hours up to the maximum of 6000 hours to produce additional units of the product in their ranking up to the maximum demand in every case so long as it is possible

 

A

B

C

Total

Maximum units           

500

300

300

 

70% of max units

350

210

210

 

Machine hours

3500

840

1050

5390

Residual hours usage

-

360

250

610

Total machine hours used

3500

1200

1300

6000

Total units

350

300

260

 

Total contribution Shs.

 

 

 

 

 

24500

12000

10400

46900

Less fixed cots

 

 

 

20000

Net profit

 

 

 

26900

 


Related Discussions:- Determine the single limiting factor

Standard costing, STANDARD COSTING STANDARD COSTING is a method, which ...

STANDARD COSTING STANDARD COSTING is a method, which uses standards for costs and revenues for the idea of control by variance analysis. It can be used either through operation

Cost classification bases, Cost Classification Bases Costs can be clas...

Cost Classification Bases Costs can be classified on either more or one of the given bases as: a) Are the costs dependent on the level of output as like variable or are the

Davids net state lottery gains, One month before she died on April 14, 2002...

One month before she died on April 14, 2002, Barbara Gent (Amy's aunt) gave Amy a coin collection. Based on careful records that Barbara kept, the collection had a cost basis of $9

Marginal costing and break evan point analysis, what is marginal costing an...

what is marginal costing and explain concept of marginal costing

Determine the current price of shares, 2. Blue-Jay Sporting Goods is a star...

2. Blue-Jay Sporting Goods is a start-up company that expects to earn $3.00 per share next year. Since the firm currently retains 100 percent of earnings to finance future grow

Cost accounting, using relevant examples discuss the meaning and scope of c...

using relevant examples discuss the meaning and scope of cost accounting

Tax bracket, You want to save $40,000 for a down payment on a new home. You...

You want to save $40,000 for a down payment on a new home. You expect to save $7,000 per year, be in the 25% tax bracket and hope to earn 4% on your investments. How long (in mon

What profit is earned by each firm, Three oligopolists, A, B and C, produce...

Three oligopolists, A, B and C, produce an identical product, Q. Q is produced under conditions of constant costs, that is, AC = MC = $100. The market demand schedule for Q is:

Calculation of deductions - wages department, Calculation of Deductions - W...

Calculation of Deductions - Wages Department A range of deductions are complete from gross earnings when computing the net payment because of the employee, that deductions may

306, creating a decision treeplan

creating a decision treeplan.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd