A company manufactures plastic-covered steel fencing in two qualities: standard and heavy gauge. Both products pass through the same processes involving steel-forming and plastic-bonding.

The standard gauge sells at $15 a roll, the heavy gauge at $20 a roll. There is an unlimited market for the standard gauge, but outlets for the heavy gauge are limited to 13000 rolls per year. However, the factory operations of each process are limited to 2400 hours each per year.

Other relevant data are given below:

Variance costs per roll:

Direct Direct Direct Gauge material wages expense

$ $ $

Standard 5 7 1 Heavy 7 8 2 Processing h per 100 rolls:

Gauge Steel-forming Plastic-bonding Standard Heavy 6 4 8 12 Agreement has been reached on revised working methods that will increase output of all processes by 1 0 per cent. This could be achieved without additional manpower or longer working hours.

REQUIRED Calculate:

(a) production mix which will maximise total contribution:

(i) at present output levels

(ii) assuming the 10 per cent production improvement is achieved

(b) the total amount of productivity bonus which will be paid to employees under

(a) (ii) on the basis of their receiving 40 per cent of the additional contribution ICMA, PS, Part Ill, Management Accounting, November 1979.