Tag (SQ): Machine Hours

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  • 15 Marks

MA – L2 – Q46 – Decision making techniques

Compute Ouluto Limited's net profit for February 20X9 based on the optimum product mix, given resource constraints and cost data.

Ouluto Limited (OUL) is engaged in the manufacture and sale of three products viz. WBA, QPR and SC. The following information is available from OUL’s records for the month of February 20X9:

WBA QPR SC
Sales price per unit (GH₵) 2,300 1,550 2,000
Material cost per Kg. (GH₵) 250 250 250
Labour time per unit (Minutes) 20 30 45
Machine time per unit (Hours) 4 2.5 3
Net weight per unit of finished product (Kg.) 6 4 5
Yield (%) 90 95 92
Estimated demand (Units) 10,000 20,000 9,000

Each worker is paid monthly wages of GH₵15,000 and works a total of 200 hours per month. OUL’s total overheads are estimated at 20% of the material cost.
Fixed overheads are estimated at GH₵5 million per month and are allocated to each product on the basis of machine hours. 100,000 machine hours are estimated to be available in February 20X9.
Required:
Based on optimum product mix, compute OUL’s net profit for the month of February 20X9.

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  • 20 Marks

MA – L2 – Q45 – Decision making techniques

Compute units of each product for Image Solutions to maximize profit and calculate contribution at optimal mix, considering machine hour constraints.

Image Solutions Limited deals in various products. Relevant details of the products are as under:

PW PX PY PZ
Estimated annual demand (units) 5,000 10,000 7,000 8,000
Sales price per unit (GH¢) 150 180 140 175
Material consumption:
R (kg) 2 2.5 1.5 1.75
T (kg) 0.5 0.6 0.4 0.65
Labour hours 2 2.25 1.75 2.5
Variable overheads (based on labour cost) 75% 80% 100% 90%
Fixed overheads per unit (GH¢) (based on 80% capacity utilisation) 10 20 14 16
Machine hours required:
Processing machine hours 5 6 8 10
Packing machine hours 2 3 2 4

Company has a long term contract for purchase of material R and T at a price of GH¢ 15 and GH¢ 20 per kg respectively. Wage rate for 8 hours shift is GH¢ 200.

The estimated overheads given in the above table are exclusive of depreciation expenses. The company provides depreciation on number of hours used basis. The depreciation on each machine based on full capacity utilisation is as follows:

Hours GH¢
Processing machine 150,000 150,000
Packing machine 100,000 50,000

The company has launched an advertising campaign to promote the sale of its products. GH¢ 2 million have been spent on such campaign. This cost is allocated to the products on the basis of sale.

Required:
Compute the number of units of each product that the company should produce in order to maximize the profit and also compute the product wise and total contribution at optimal product mix.

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  • 15 Marks

MA – L2 – Q36 – Decision Making Techniques

Decide whether Akroma Ghana Limited should produce Item B internally or buy from a supplier under two conditions.

Akroma Ghana Limited has a machine with which it produces Item A. Ten (10) machine hours are required to produce the item. This product’s selling price is GH₵150 with a variable cost of GH₵60. The company has just received an order for the supply of Item B. Each unit of Item B will require four (4) machine hours. The annual quantity of Item B required is 12,000 units and the cost estimates for the quantity is given below:

GH₵
Direct material 125,000
Direct wages 52,000
Variable overheads 58,000
Floor space occupancy 11,500
Depreciation 7,500
Salary of Inspector for Item B alone 10,000
Total Cost 264,000

It was noted that Item B could be outsourced from a supplier at a cost of GH₵28 per unit.
You are required to assist management to decide whether to produce Item B internally or to buy from an outside supplier if the following conditions exist:
(i) Production of Item B will not in any way disturb the production of Item A.
(ii) The machine producing Item A is already fully engaged.

(B) List any FIVE steps in the management decision-making process.

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  • 20 Marks

MA – L2 – Q8 – Total Quality Management

Calculate production units, material purchases, machine hours, and profit/loss before and after TQM for Akwasi Company.

Akwasi Company makes and sells a single product from its base in Kumasi. The existing product specifications are as follows:

| Material X | 8 square metres at GH₵4 per square metre | | Machine time | 0.6 running hours | | Other machine costs | GH₵40/hour | | Selling price | GH₵100 |

Akwasi Company needs to fulfil orders for 5,000 units per period. There will be no change in inventory level during the period.
The following information is available about performance before the introduction of a TQM programme:
(1) 5% of incoming material from suppliers is scrapped due to poor receipt and storage.
(2) 4% of material input to the machine process is wasted in process.
(3) Inspection and storage of material cost GH₵0.10 per metre.
(4) Inspection during the cycle costs GH₵25,000 per period.
(5) Production is increased to allow for the downgrading of 12.5% of units at the final inspection phase. Downgraded units are sold as ‘second quality’ units at a discount of 30% of the final selling price.
(6) Production is increased to allow for returns from customers. These are replaced free of charge. Returns are due to specification failure and account for 5% of units initially delivered to customers. Replacement units incur a delivery cost of GH₵8 per unit. 80% of the returns from customers are rectified using 0.2 hours of machine running time and are resold as ‘third quality’ products at a discount of 50% on the standard selling price. The remaining returned units are sold as scrap for GH₵5 per unit.
(7) Product liability claims are estimated at 3% of sales revenue from standard product sales.
(8) Machine idle time is 20% of gross machine hours used.
(9) Sundry costs of administration, selling and distribution total GH₵60,000 per period.
(10) Akwasi Company is aware of these excess costs and currently spends GH₵20,000 per period to prevent them from happening.

Akwasi Company is planning a quality management programme that will increase its cost prevention expenditure from GH₵20,000 to GH₵60,000 per period. The estimates of performance levels after the TQM programme are as follows:
(1) A reduction in stores losses of material to 3%.
(2) A reduction in the downgrading of products inspected to 7.5%.
(3) A reduction in material losses in the process to 2.5% of input to the machine process.
(4) A reduction in returns of products from customers to 2.5% delivered.
(5) A reduction in machine idle time to 12.5% of gross hours used.
(6) A reduction in product liability claims to 1% of sales revenue.
(7) A reduction in inspection checks by 40% of the existing figure.
(8) A reduction in sundry administration, selling and distribution costs by 10% of the existing figure.
(9) A reduction in machine running time per unit of product to 0.5 hours.

Required:
(a) Prepare summaries showing total units, purchases of material and gross machine hours:
(i) before implementation of the TQM programme, and
(ii) after implementation of the TQM programme.
(b) Prepare statements of profit or loss for the period both before and after implementation of the TQM programme.

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  • 20 Marks

MA – L2 – Q3 – Throughput Accounting

Calculate profit-maximizing output using marginal costing for two products with limited machine hours.

A company based near the Blue River manufactures two products, Product A and Product B, on the same machines. Sales demand for the products exceeds the machine capacity of the company’s production department. The potential sales demand in each period is for 8,000 units of Product A and 12,000 units of Product B. Sales prices cannot be increased due to competition from other firms in the market. The maximum machine capacity in the production department is 32,000 hours in each period.
The following cost and profitability estimates have been prepared:

Product A Product B
Sales price GH¢22 GH¢27
Direct materials 10 9
Direct labour and variable overhead 6 11
Contribution per unit 6 7
Machine hours per unit 1.5 2

Fixed costs in each period are GH¢90,000.
Required:
(a) Using marginal costing principles, calculate the profit-maximising output in each period, and calculate the amount of profit.

(b) Explain how throughput accounting differs from marginal costing in its approach to maximising profit.

(c) Use throughput accounting to calculate the throughput accounting ratio for Product A and for Product B. You should assume that the direct labour cost and variable overhead cost in your answer to part (a) is fixed in the short term.

(d) Using throughput accounting principles, calculate the profit-maximising output in each period, and calculate the amount of profit.

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