The manager of a small business has received enquiries about printing three different types of advertising leaflet. Information concerning these three leaflets is shown below:

In addition to the specific fixed costs a further £4,000 per month would be incurred in renting special premises if any or all of the above three leaflets were printed.
The minimum printing order would be for 30,000 of each type of leaflet per month and the maximum possible order is estimated to be 60,000 of each leaflet per month.
Required:

(a) (i) Examine and comment upon the potential profitability of leaflet printing. Make whatever calculations you consider appropriate. (8 marks)
(it) Assuming that orders have been received to print each month 50,000 of both Leaflet A and Leaflet B calculate the quantity of Leaflet C which would need to be ordered to produce an overall profit, for all three leaflets, of £1,800 per month. (4 marks)

(b) It is possible that a special type of paper used in printing the leaflets will be difficult to obtain during the first few months.
The estimated consumption of this special paper for each type of leaflet is:

Advise the manager on the quantity of each leaflet which should be printed in order to maximize profit in the first month, if 50,000 of each type of leaflet have been printed, there remains unfulfilled orders of 10,000 for each type of leaflet and there are 170 packs of special paper available for the rest of the month.

(c) 'If the manager of the above business wastes ten packs of special paper then the cost to the business of that waste is simply the original cost of that paper.'
Critically examine the validity of the above statement.

Transcribed Image Text:

Leaflet type AW B C Selling price, per 1000 leaflets 100 220 450 Estimated printing costs: Variable, per 1000 leaflets 40 70 130 Specific fixed costs, per month 2,400 4,000 9,500