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MA – L2 – Q55 – Decision making techniques

Provide the optimal production plan for Harmony Company Ltd with limited labour hours for three products.

Question

Harmony Company Ltd is preparing for next season’s operations. The company has provided the following information relating to its three products:

	TA	GB	DC
	GH¢	GH¢	GH¢
Selling price	18.5	16.2	12.6
Material cost	8.75	10.5	3.5
Labour cost	7.7	4.4	7.7

Labour hours per unit:

	TA	GB	DC
Labour hours	3.5	2.0	3.5

Annual Demand:
2,150 units (TA), 3,235 units (GB), 1,556 units (DC)

The company can only make available a total of 18,560 hours in the short run.

Required:
(a) Provide the optimal production plan for Harmony Ltd for the ensuing period.

(b) What is the total incremental benefit of producing DC instead of GB, assuming available resources can only meet demand of DC?

Answer

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Tags: contribution per hour, decision making, Labour Hours, Optimal production, production plan, Resource Allocation
Level: Level 2

Topic: Decision making techniques

MA – L2 – Q43 – Decision Making Techniques

Recommend whether to shut down internal production of Component A or B and switch to external purchasing based on cost analysis.

Question

Vento Industries makes two components, A and B, for which costs in the next year are expected to be as follows:

	A	B
Production (units)	30,000	20,000
Variable costs per unit:	GH¢	GH¢
Direct materials	6	5
Direct labour	3	9
Variable production overheads	1	3
Variable production cost	10	17

Direct labour is paid GH¢12 per hour. There will be only 19,500 hours of direct labour time available next year, and any additional components must be purchased from an external supplier.
Total fixed costs per annum are expected to be as follows:

	GH¢
Incurred as a direct consequence of making A	40,000
Incurred as a direct consequence of making B	50,000
Other fixed costs	30,000
	120,000

An external supplier has offered to supply units of A for GH¢12.50 and units of B for GH¢23.

Required:
(a) Recommend whether Vento Industries should shut down internal production of Component A or Component B and switch to external purchasing.

(b) Recommend the quantities that Vento Industries should make of the components, and the quantities that it should buy externally, in order to obtain the required quantities of both components at the minimum cost. Calculate what the total annual cost will be.

Answer

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Tags: Cost Minimization, External Purchasing, Labour Hours, Limiting Factors, Make or Buy, Production Planning
Level: Level 2

Topic: Decision making techniques

MA – L2 – Q42 – Decision Making Techniques

Determine optimal production mix for four liquids with a contract obligation, maximizing profit within labour hour constraints.

Question

NexGen Ltd. manufactures four liquids: A, B, C, and D. The selling price and unit cost details for these products are as follows:

	Liquid A	Liquid B	Liquid C	Liquid D
	GH¢ per litre	GH¢ per litre	GH¢ per litre	GH¢ per litre
Selling price	100	120	120	110
Costs:
Direct materials	24	30	21	18
Direct labour (GH¢6/hour)	18	15	24	12
Direct expenses	0	0	0	0
Variable overhead	12	10	18	12
Fixed overhead (note 1)	24	20	36	24
Total cost per litre	78	75	102	66
Profit per litre	22	35	18	44

Note 1: Fixed overhead is absorbed on the basis of labour hours, based on a budget of 1,600 hours per quarter (three months).
During the next three months, the number of direct labour hours is expected to be limited to 1,345 hours. The same labour is used for all products.
The marketing director has identified the maximum demand for each of the four products during the next three months as follows:

Liquid A: 200 litres
Liquid B: 150 litres
Liquid C: 100 litres
Liquid D: 120 litres
No inventories are held at the beginning of the period that could be used to satisfy demand in the period.

Required:
(i) Determine the number of litres of liquids A, B, C, and D to be produced and sold in the next three months in order to maximise profits.
(ii) Calculate the profit that this would yield.

(B) Suppose that a contract has been made before the beginning of the period by NexGen Ltd. and one of its customers, PrimeCorp. NexGen Ltd. has agreed to supply PrimeCorp with 20 litres of each A, B, C, and D during the three-month period.
This sales demand from PrimeCorp is included in the demand levels shown above in part (a) of the question.

Required:
(i) Given the contract with PrimeCorp, determine the number of litres of liquids A, B, C, and D to be produced and sold in the next three months in order to maximise profits, if the maximum number of labour hours remain 1,345 hours for the period.
(ii) Calculate the profit that this would yield.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contract Obligations, Contribution Analysis, Labour Hours, Limiting Factors, Production Planning, Profit Maximization
Level: Level 2

Topic: Decision making techniques

Tag (SQ): Labour Hours

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MA – L2 – Q55 – Decision making techniques

Provide the optimal production plan for Harmony Company Ltd with limited labour hours for three products.

MA – L2 – Q43 – Decision Making Techniques

Recommend whether to shut down internal production of Component A or B and switch to external purchasing based on cost analysis.

MA – L2 – Q42 – Decision Making Techniques

Determine optimal production mix for four liquids with a contract obligation, maximizing profit within labour hour constraints.

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Provide the optimal production plan for Harmony Company Ltd with limited labour hours for three products.

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MA – L2 – Q43 – Decision Making Techniques

Recommend whether to shut down internal production of Component A or B and switch to external purchasing based on cost analysis.

You're reporting an error for "MA – L2 – Q43 – Decision Making Techniques"

MA – L2 – Q42 – Decision Making Techniques

Determine optimal production mix for four liquids with a contract obligation, maximizing profit within labour hour constraints.

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