Temple Limited has been offered two new contracts, the details of which are as follows:

The company would only have the capacity to accept one of the new contracts.
Unfortunately, materials suitable for use in all of its work are in short supply and the company has estimated that only 200 000 kilos would be available during the year to December 2007. Even more worrying is the shortage of skilled labour; only 100 000 direct labour hours are expected to be available during the year. The good news is that there may be an upturn in the market for its normal contract work.
Required:
Calculate:
(1) the contribution per unit of each limiting factor for

(a) the company’s normal work;

(b) Contract 1; and

(c) Contract 2.
(2) the company’s maximum contribution for the year to 31 December 2007, assuming that it accepts either Contract 1 or Contract 2.

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Contract (1) (2) 000 000 Contract price 1000 2100 Direct materials 300 600 Direct labour 300 750 Variable overhead 100 250 Fixed overhead 100 200 800 1800 Profit 200 300 Direct materials required (kilos) 50000 100000 Direct labour hours required 10000 25000 Note: The fixed overhead has been apportioned on the basis of direct labour cost. Temple is a one-product firm. Its budgeted cost per unit for its normal work for the year to 31 December 2007 is summarized below. Sales 6000 Direct materials (100 kilos) 700 Direct labour (200 hours) 3000 Variable overhead 300 Fixed overhead 1000 5000 Profit 1000