Advanced: Maximizing profit and sales revenue using the graphical approach Goode, Billings and Prosper pic manufactures two products, Razzle and Dazzle. Unit selling prices and variable costs, and daily fixed costs are:

Production of the two products is restricted by limited supplies of three essential inputs: Raz, Ma, and Taz. All other inputs are available at prevailing prices without any restriction. The quan¬ tities of Raz, Ma, and Taz necessary to produce single units of Razzle and Dazzle, together with the total supplies available each day, are:

William Billings, the sales director, advises that any combination of Razzle and/or Dazzle can be sold without affecting their market prices. He also argues very strongly that the company should seek to maximize its sales revenues subject to a mini¬ mum acceptable profit of £44 per day in total from these two products.
In contrast, the financial director, Silas Prosper, has told the managing director, Henry Goode, that he believes in a policy of profit maximization at all times.
You are required to:

(a) calculate:
(i) the profit and total sales revenue per day, assuming a policy of profit maximiza¬ tion, (10 marks)
(ii) the total sales revenue per day, assuming a policy of sales revenue maximization subject to a minimum acceptable profit of £44 per day, (10 marks)

(b) suggest why businessmen might choose to follow an objective of maximizing sales revenue subject to a minimum profit constraint. (5 marks)
(Total 25 marks)
ICAEW Management Accounting

Transcribed Image Text:

Selling price per unit Variable costs per unit Contribution margin per unit Joint fixed costs per day Razzle Dazzle () () 282 20 30 20 12 10 60