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

Required:

(a) State, 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 deter- mine which machines will be a limiting factor (scarce resource).)

(b) State 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. E-6

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Product Selling price ( per unit) Sales demand (units) Material cost ( per unit) Variable production cost ( per unit) A B C 25 30 18 2,500 3,400 5,100 12 13 10 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.