Dartmoor Ltd is able to produce four products, and is planning its production mix for the next period. Estimated costs, sales, and production data are given below:
|
£ per unit
Direct materials
|
w
12
|
x
36
|
y
14
|
z
24
|
|
Direct labour
|
9
|
6
|
18
|
15
|
|
Variable overhead
|
9
|
8
|
9
|
11
|
|
Selling price
|
36
|
60
|
50
|
60
|
Total fixed costs are estimated to be £150,000 per annum which are anticipated to be absorbed at £7.50 per unit of each product.
|
Resources /unit Labour (hours)
|
3
|
2
|
6
|
5
|
|
Materials (kg)
|
|
3
|
2
|
2
|
Maximum demand has been estimated by the sales manager at 5,000 units for each product.
(a) Calculate the profit Dartmoor Ltd would earn if the company sold the maximum possible of each product.
(b) The particular labour skill required is in short supply and it is not anticipated that further employees could be recruited and trained in the following year, consequently the labour hours available are restricted to 72,000 per annum.
(i) Calculate the optimum sales volume that would maximize profit subject to this constraint - what would this profit be?
(ii) How much per hour would it be worth to obtain additional labour?
(c) Consider how you would calculate the cost to the company of one hour's worth of wasted or idle time.
(d) Exmoor Ltd (a small engineering company) has agreed to supply 5,000 units of product X at a fixed price of £48 each.
(i) Is the offer worth pursuing and why?
(ii) What non-monetary factors should be considered in adopting such a contract?