A Gainford Ltd is a manufacturing company which produces three specialist products - A, $B$ and $C$.
Question:
A Gainford Ltd is a manufacturing company which produces three specialist products - A, $B$ and $C$. For costing purposes the company's financial year is divided into 13 periods of four weeks. There is always sufficient raw material in inventory to meet any planned level of production but there is a maximum number of labour hours available to the company. The production of each product requires a different physical layout of the factory equipment although the labour tasks are broadly similar. For this reason the company only produces one type of product at any time, and the decision as to which product to manufacture is taken before each four week period commences.
A 40 -hour working week is in operation and the following factory staff are employed:
Grade 128 staff paid at a rate of $£ 8$ per hour Grade 212 staff paid at a rate of $£ 6$ per hour In addition, a limited number of qualified part-time staff can be employed when required. Both full-time and part-time staff are paid at the same rate. The next four week period is number 7 and the following maximum part-time hours are available for that period:
Grade 1 2,240 hours Grade 21,104 hours The production costs and selling costs per unit for each product are:
\begin{tabular}{lrrr}
& A & B & C \\
Direct raw material & $£$ & $£$ & $£$ \\
Direct labour: Grade 1 & 147 & 87 & 185 \\
Grade 2 & 64 & 56 & 60 \\
Variable overheads & 24 & 27 & 21 \\
Fixed overheads & 15 & 10 & 15 \\
Selling price of each product & 12 & 12 & 12 \\
\hline
\end{tabular}
There is a strong demand for all three products and every unit produced is sold.
\section*{Required:}
(a) Explain the terms:
(i) 'contribution'
(ii) 'key factor'.
(b) Calculate the contribution and profit obtained when each product is sold.
(c) Prepare a statement from the available information, for period number 7 which will assist management to decide which product to produce in order to maximise contribution. This statement should include details of the:
(i) total production labour hours available (ii) number of hours required to produce one unit of each type of product (iii) maximum production (in units) possible of each type of product (iv) product which will give the greatest contribution in period number 7 .
(d) Outline the main steps in the manufacturing decision-making process which ought to be adopted by a business.
(AQA (Associated Examining Board): GCE A-level)
Step by Step Answer:
Frank Woods Business Accounting Volume 2
ISBN: 9780273767923
12th Edition
Authors: Frank Wood, Ph.D. Sangster, Alan