A business makes three products, A, B and C. All three products require the use of two types of machine: cutting machines and assembling machines. Estimates for next year include the following:

Fixed cost for next year is expected to total ?42,000.The business has cutting machine capacity of 5,000 hours a year and assembling machine capacity of 8,000 hours a year.

Required:(a) State, with supporting workings, which products in which quantities the business should plan to make next year on the basis of the above information. Hint: First determine which machines will be a limiting factor (scarce resource).

(b) State the maximum price per product that it would be worth the business paying to a subcontractor to carry out that part of the work that could not be done internally.

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Product Selling price (£ per unit) Sales demand (units) Material cost (£ per unit) Variable production cost (£ per unit) Time required per unit on cutting machines (hours) Time required per unit on assembling machines (hours) 18 25 30 2,500 3,400 5,100 12 10 3 13 4 7 1.0 0.5 1.0 0.5 1.0 0.5