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:

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

AppendixLO1