4.1 Angelina Ltd manufactures two products v12. Product M and product N. Product

Question

4.1 Angelina Ltd manufactures two products v12. Product M and product N. Product M requires 2.5 kg?? ra materials and 4 labour hours, whilst product N requires 5 kg of the same raw material and 2 labour hours. Additional information for the past period for these two products are: Product M Product N Sales demand (in units) 500 Per unit (R) 80 500 Per unit (R) 120 Contribution per unit Required 4.1.1 Determine the product mix that will maximize profits and calculate the value of contribution that would be earned if only 1 248 labour hours are available. (10) 4.2 Todcom Ltd manufactures walking rings for toddlers. The monthly production during the past few months was 1 000 walking rings per month which uti lised 80% capacity. The company received an order to supply 240 walking rings at R164 each. The manufacturing costs per ring are provided below: Variable costs 170 40 70 32 28 24 14 10 194 Direct materials Direct labour Manufacturing overheads Marketing and administration Fixed costs Manufacturing overheads Marketing and administration Total cost per unit Required: 4.2.1 Advise the management of Todcom Ltd whether to accept the special order or not. (10)

Explanation / Answer

Answer 4.1.1

Here point is that the sales demand for the both products M & N is limited upto 500 Units, so we cannot make beyond 500 units of any products after this the contribution per unit is more of product N in comparision of product M so we have to make maximum units of product N first up to 500 units in our limited Labour Hours of 1248 Hours

So we can make 500 units of product N in labour hours of as below  

Units x Hours required per unit

500 x 2 = 1000 Hours

Remaining Labour hours for producing product m

Total Hours - consumed hours in production of N

1248 - 1000

248 Hours Available

Units can be produced of product M in 248 labour hours

= 248 / labour hour of one unit of product M

= 248 / 4

= 62 Units

So we have to produced 500 units of N and 62 units of M to maximize profit.

Calculation of total contribution from above product mix

Total Contribution = 40000 + 7440 = $47440

Answer 4.2.1

Past Monthly Production = 1000 Walking Rings @ 80 % capacity

Additional Special Order = 240 Units @ $164 each

Total Capacity = 1000 / 80 x 100 = 1250 Units

so company can make additional unit in his existing capacity (1000 + 240) = 1240 against capacity of 1250 units  

Available, so no issue of capacity.

Now, contribution from addtional order

Sales per unit - variable cost per unit

= 164- (40+70+32+28)

= 164- 170

= (-) 6

So making addtional walking rings @ 164 will result in negative contribution of $6.00 that will reflect loss to the company.

So Todcom Ltd should not accept the special order because it is not beneficial to the company

Product M Product N Sales (Units) A 500 62 Contribution per unit (Given) B 80 120 Total Contribution A x B 40000 7440

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.