Ennerdale Manufacturing currently produces and sells five different products. To
ID: 2340191 • Letter: E
Question
Ennerdale Manufacturing currently produces and sells five different products. Total demand for the products exceeds the firm's capacity to produce all of them. The constraint on production is the time available on a special machine. Data on the products and time required on the special machine are summarized in the following table Product Selling Price Variable Manufacturing Cost S8 Variable Marketing Cost Machine Hours Required per Unit Maximum Unit demand per 10,000 7,500 20,000 1,5002,000 Period WX $12 S15 S18 S24 S32 S9S11 S12 S18 S2S6 0.3 0.25 0.5 0.4 S1 The firm has only 5,500 hours of time available on the special machine per period. Fixed costs are $110,000 per period REQUIRED 1. How many units of each product should the firm produce and sell to maximize income? 2. Identify reasons why the managers cannot be certain that they have accurately estimated the following for each product: selling price, variable costs, machine hours needed per unit, and maximum unit demand per period. 3. Discuss how the business risks in Part F might affect the managers' production decisions.Explanation / Answer
Ans. 1 Calculation of Most profitable product mix
Step1: Calculation of Contribution margin per unit
V W X Y Z
SP 12 15 18 24 32
Variable cost 9 10 14 14 24
Contribution margin 3 5 4 10 8
machine hrs p u .20 .30 .25 .50 .40
Contri. per machine hr 15 16.67 16 20 20
Rating 5 4 3 1 1
Step 2 : Product Mix
Product Unit Hours per units Total hours
V
W
X 15800 .25 3950 (*3950/.25)
Y 1500 .50 750
Z 2000 .40 800
Total hours 5500
2. Following are the reason for not certaining accurately estimate
1. Selling price:- Due to Cost fluctuation we are not able to estimate the selling price and some time raw material rate is increase/decrease that also reason for not certain of accurately estimate.
Varaible cost:- Variable cost will very as price of raw material, labour charges and other manufacturing cost , those cost are regulary changing that's way we are not able estimate accurately.
Machine Hour needed per unit: Due to some technical issue or modification in the product machine hour per unit can be increase.
Maximum unit demand: That are depend product marketability and customer demand and market competition.
Ans. 3
Business risk for In-accurate estimate:- due to in-accurate estimate company profitability will effect and there will be huge difference between budgeted profit and actual profit.
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