Reconciling demand for resources and outputs with their supply is associated most closely with which of the following?
A Inventory management
B Production planning and control
C Capacity planning and control
D Quality control
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Blue Horizon Industries Limited (BHIL) produces and markets three products viz. Alpha, Beta, and Gamma. Following information is available from BHIL’s records for the manufacture of each unit of these products:
| Alpha | Beta | Gamma | |
|---|---|---|---|
| Selling price | GH₵ 66 | GH₵ 106 | GH₵ 124 |
| Material-A (GH₵ 4 per kg) | GH₵ 8 | GH₵ 12 | GH₵ 12 |
| Material-B (GH₵ 6 per kg) | GH₵ 12 | GH₵ 24 | GH₵ 24 |
| Direct labour (GH₵ 10 per hour) | GH₵ 25 | GH₵ 25 | GH₵ 30 |
| Variable overhead based on: | |||
| – Labour hours | GH₵ 1.8 | GH₵ 1.5 | GH₵ 1.8 |
| – Machine hours | GH₵ 1.4 | GH₵ 1.2 | GH₵ 1.2 |
| Total | GH₵ 3.2 | GH₵ 2.7 | GH₵ 3.0 |
| Other data: | |||
| Machine hours | 7 | 6 | 6 |
| Maximum demand per month (units) | 3,000 | 3,000 | 5,000 |
Additional information:
(i) BHIL is also engaged in the trading of a fourth product Zeta, which is very popular in the market and generates a positive contribution. BHIL currently purchases 600 units per month of Zeta from a supplier at a cost of GH₵ 40 per unit. In-house manufacture of Zeta would require: 2.5 kg of material-B, 1 hour of direct labour, and 2 machine hours.
(ii) Materials A and B are purchased from a single supplier who has restricted the supply of these materials to 22,000 kg and 34,000 kg per month respectively. This restriction is likely to continue for the next 8 months.
(iii) BHIL has recently accepted a Government order for the supply of 200 units of Alpha, 300 units of Beta, and 400 units of Gamma each month for the next 8 months. These quantities are in addition to the maximum demand stated above.
(iv) There is no beginning or ending inventory.
Required:
Determine whether BHIL should manufacture Zeta internally or continue to buy from the supplier during the next 8 months.
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An engineering company has been experiencing problems with restricted availability of resources. The company manufactures a variety of casings. It makes four types of casing. Each casing requires the same bought-in component and some high-grade steel. The standard costs for the four types of casing are as follows:
| Casing | A | B | C | D |
|---|---|---|---|---|
| GH₵ | GH₵ | GH₵ | GH₵ | |
| Steel | 250 | 500 | 190 | 390 |
| Bought-in component | 50 | 50 | 50 | 50 |
| Direct labour | 60 | 60 | 50 | 100 |
| Variable production costs | 40 | 50 | 40 | 50 |
| Fixed production costs | 180 | 240 | 150 | 270 |
| Selling and administration costs | 145 | 225 | 120 | 215 |
| Profit | 35 | 55 | 30 | 55 |
| Selling price | 760 | 1,180 | 630 | 1,130 |
All the selling and administration costs are fixed and the same single component is used for each of the four products. Direct labour is paid GH₵8 per standard hour and each member of the workforce is capable of producing any of the casings.
The company’s main customer has ordered 30 units of Casing A, 20 units of B, 30 units of C, and 20 units of D for production and delivery in the next month. Senior management have agreed that this order should be treated as a priority order and that these casings must be manufactured and delivered to the customer next month. This is necessary to maintain the goodwill of the customer. It is estimated that this order represents 10% of the total demand next month for each type of casing.
The company operates a just-in-time system, and has no inventories of steel, components, or finished goods.
Required:
If the aim is to maximise profit for the month, establish the production and selling plan for the company next month in the following situation:
(a) Situation 1. Supplies of steel are limited to GH₵250,000.
(b) Situation 2. Only 400 bought-in components are available from suppliers.
(c) Situation 3. A labour dispute restricts available productive labour hours in the month to 2,125.
(d) Situation 4. A labour dispute restricts available productive labour hours in the month to 2,125; but the manufacture of any quantities of the four casings could be sub-contracted to an outside supplier. The cost of buying the casings externally would be GH₵475, GH₵705, GH₵380, and GH₵640 for Casing A, Casing B, Casing C, and Casing D respectively. In addition, it should be assumed that the major customer insists that its order is completed by the company itself and the manufacture should not be subcontracted.
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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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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.
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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:
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.
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