Advanced: Optimal output and calculation of maximum amount to-pay for a scarce resource using the graphical approach. THS produces two products from different combinations of the same resource. Details of the products are shown below:

THS is preparing the production plan for next month. The maximum resource availability for the month is:

Required:

(a) Identify, using graphical linear programming, the optimal production plan for products E and R to maximize THS’s profit in the month. (13 marks)
The production manager has now been able to source extra resources:
e An employment agency would supply skilled labour for a monthly fee of $1000 and $14 per hour worked;
e A machine that has the same variable running costs per hour as the current machinery can be leased. The leased machine would be able to run for 2000 hours per month.
Required:
(ib) Calculate the maximum amount that should be paid next month to lease the machine. (Note: you should assume that a contract has already been signed with the employment agency.) (8 marks)
(c¢) Explain TWO major factors that should be considered before deciding to lease the machine. (Note: you should assume that the data supplied are totally accurate.)
(4 marks)
CIMA P2 Performance Management

Transcribed Image Text:

E R per unit per unit Selling price $99 $159 Material A ($2 per kg) 3kgs 2kgs Material B ($6 per kg) Machining ($7 per hour) Skilled labour ($10 per hour) Maximum monthly demand (units) 2 hours unlimited 3kgs 3 hours 5 hours 1500 4kgs 2 hours