PQR Limited is an engineering company engaged in the manufacture of components and finished products. The company is highly mechanised and each of the components and finished products requires the use of one or more types of machine in its machining department. The following costs and revenues (where appropriate) relate to a single component or unit of the finished product:

1.The labour hour rate is 5 per hour. 2. Overhead absorption rates per machine hour are as follows:

Requirement:

(a) Calculate the number of units of each finished product that PQR Limited should produce in order to maximise its profits, and the profit per week that this should yield. (12 marks)

(b) The production director has now discovered that he can obtain unlimited quantities of components identical to A and B for 50 and 96 per unit respectively. State whether this information changes the production plan of the company if it wishes to continue to maximise its profits per week. If appropriate, state the revised production plan and the net benefit per week caused by the change to the production plan. (7 marks)

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Selling price Direct materials Direct wages Variable overhead: Drilling Grinding Components Finished products A B C D 127 161 8 10 29 29 33 38 30 20 20 25 88 6 36 9 22 Fixed overhead: Drilling Grinding Total cost 12 201 10 54 16 4 6 18 20 104 858 24 15 89 126