Self-test Company X manufactures ladies’ shoes in three styles. The following table shows the costs for each style, the anticipated sales per style and the budgeted profit.

The company has no problem selling all the products manufactured but it does have a limit on the machine hour capacity of its factory.

The object of the manufacturer is to make the best possible profit, taking into account any capacity restraints. In this case it is not possible to manufacture all the styles that could be sold because of a scarce resource (the machine hours).

Therefore, Company X must manufacture the styles that produce the highest contribution per unit of the scarce resource.

The following is the budget for 31 December 2009:

A B C TOTAL Machine hours 98 90 82 270 A B C TOTAL Direct material costs 309,000 104,400 362,500 775,900 Direct labour 129,000 88,200 183,000 400,200 Variable overheads 46,900 42,000 96,120 185,020 Direct costs 484,900 234,600 641,620 1,361,120 Fixed overheads 40,000 34,000 42,000 116,000 Total costs 524,900 268,600 683,620 1,477,120 Profit 240,100 325,400 218,780 784,280 Sales 765,000 594,000 902,400 2,261,400 The directors ask you to investigate the problem and recommend to them which styles should be manufactured assuming the machine hours available amount to 250 per annum.