Question: A company makes and sells various products. Three such products are Brittle, Croner, Dryad. The following Budget/Forecast information is available for the coming year:
Brittle Croner Dryad
Selling price/unit ($) 60 40 30
Variable cost/unit ($) 40 30 32
Company fixed costs ($) arbitrarily apportioned 5000 13000 12000
Forecast of maximum sales potential (units) 1700 3500 6000
Direct labour hours/unit 6 2 4
Direct material/unit (kg) 8 3 6
It has been established that the maximum direct labour hours available for the coming year will be 15,000 hours. It will not be possible to employ additional workers or work additional overtime. In addition, the raw material, which is imported, will be limited to a total weight of 30,000 kgs. All opening and closing stocks are nil.
Required: Establish whether direct labour or materials will be a limiting factor during the coming year. Show your calculations.
Calculate the sales/production mix which will maximize profit for the year given the above constraints and calculate what the maximum profit will be?
Suggest reasons for adopting a production/sales policy which is not based on the profit maximising mix calculated in (2) above.