AL-EHH & Sons Company manufactures ranges of sport shoes for local and international market.Due to a new national policy,the company find that rage for skilled workers are to increase by 50% over the budget figures..There is a shortage of such skilled workers and it takes over a year to train new recruits adequately.As the mangement accountant,the managing director has asked you for advice as to which order of priority on the product range would give best use of the skilled labour resources available.There is no change in the cost of unskilled labour of which there is no shortage.
The original budget figures for the next period before allowing for the increase in labour cost detailed as follows:
| Product |
Nikey |
Miduno |
Axxic |
| Maximum production in units |
10,000 |
9,000 |
11,000 |
| Selling price per unit($) |
32 |
30 |
36 |
| Variable Cost Per Unit ($) : |
|
|
|
| Material |
6 |
10 |
8 |
| Skilled labour at $8 per hour |
8 |
8 |
12 |
| Unskilled labour at $4 per hour |
4 |
4 |
2 |
Variable overheads are recovered at the rate of $2 per skilled labour hour.The skilled labour hours available amounts to 30,000 hours in the period.There are fixed costs of $55,500.
(a) Demonstrate the best production mix which will maximize profitability for Al-Ehh & Sons Company.
(b) Calculate the total profit from the proposed production mix as in (a).
(c) Indicate 2 factors to be considered in pricing decision and 1 example for each factor.