QUESTION 4 The following data relates to Master Car Parts Limited, a manufacture

Question

QUESTION 4 The following data relates to Master Car Parts Limited, a manufacturer of a range of car component products Selling Price 65 76 / unit 65 48 54 Direct Materials / unit 12 12 16 16 12 Direct labour £ / unit 18 12 18 18 12 Fixed Overheads 20 /unit 15 15 20 20 Estimated Demand 100 (units) 150 120 180 160 All labour is charged at the same rate of f 6/ hour and the cost of each kilogram of material is f 4 per kilogram. Required: 1) Based on the above information what is the ideal product mix and total contribution given a) labour is limited to 1 640 labor hours (9 marks) b) material is limited to 1 630 kilograms (9 warks) 2) What other non financial (qualitative) factors should the company consider before coming to a final decision? (7 marks) TOTAL 25 MARKS Page 8 of 10

Explanation / Answer

a) Labor is limited 1640 hours A B C D E f Selling price per unit 65 76 65 48 54 g Direct material 12 12 16 16 12 h Direct labor 18 12 18 18 12 i Fixed overheads 20 15 15 20 20 j Estimated demand 100 150 120 180 160 k=f-g-h Unit contribution 35 52 31 14 30 l=h/6 Direct Labor hour per unit 3 2 3 3 2 m=k/l Contribution per direct labor hour 11.66667 26 10.33333 4.666667 15 Maximum contribution per labor hour 26 PRODUCT B Estimated demand for Product B 150 Labor hours required for 150 unit 300 (150*2) Balance labor hour=1640-300 1340 Next highest contribution per labor hour 15 PRODUCT E Estimated demand for Product E 160 Labor hours required for 160 unit 320 (160*2) Balance labor hour=1340-320 1020 Next highest contribution per labor hour 11.67 PRODUCT A Estimated demand for Product A 100 Labor hours required for 100 unit 300 (100*3) Balance labor hour=1020-300 720 Next highest contribution per labor hour 10.33 PRODUCT C Estimated demand for Product C 120 Labor hours required for 120 unit 360 (120*3) Balance labor hour=720-360 360 Next highest contribution per labor hour 4.67 PRODUCT D Estimated demand for Product D 180 Labor hours required for 180 unit 540 (180*3) Hours Available 360 Number of Product D to be Produced 120 (360/3) PRODUCTS A B C D E Number of units to be produced 100 150 120 120 160 Contribution per labor hour 11.66667 26 10.33333 4.666667 15 Labor hour per unit 3 2 3 3 2 SUM Total labor hours required 300 300 360 360 320 1640 b) Material is limited to 1630 Kilogram A B C D E f Selling price per unit 65 76 65 48 54 g Direct material 12 12 16 16 12 h Direct labor 18 12 18 18 12 i Fixed overheads 20 15 15 20 20 j Estimated demand 100 150 120 180 160 k=f-g-h Unit contribution 35 52 31 14 30 l=g/4 Direct material (Kilogram) per unit 3 3 4 4 3 m=k/l Contribution per kilogram of direct material 11.66667 17.33333 7.75 3.5 10 n=j*l Total Material Required for estimated demand 300 450 480 720 480 Material Cumulative Required Requirement Product B 150 units 450 450 Product A 100 units 300 750 Product E 160 units 480 1230 Product C to be produced(1630-1230)/4=100 400 1630 PRODUCTS A B C D E Number of units to be produced 100 150 100 0 160 Contribution per Kilogram of material 11.66667 17.33333 7.75 3.5 10 Material quamtity per unit(Kilogram) 3 3 4 4 3 SUM Total Materials required(Kilogram) 300 450 400 0 480 1630 2) Other Factors to be considered Whether demand for other parts will change due to non availability of one or more parts Whether there will be loss of customers Whether it will be profitable to increase capacities by removing constraints

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