Intermediate: Allocation of scarce capacity EX Limited is an established supplier of precision parts to a major aircraft manufacturer. It has been offered the choice ofmaking either Part A or Part B for the next period, but not both. Both parts use the same metal, a titanium alloy, of which 13 000 kilos only are available, at £12.50 per kilo. The parts are made by passing each one through two fully-automatic computer-controlled machine lines - S and T - whose capacities are limited. Target prices have been set and the follow¬ ing data are available for the period:

Part details

You are required:

(a) to calculate which part should be made during the next period to maximise contribution;
(9 marks)

(b) to calculate the contribution which EX Limited will earn and whether the company will be able to meet the maximum call-off.
(3 marks)
As an alternative to the target prices shown above, the aircraft manufacturer has offered the following alternative arrangement:
Target prices less 10% plus £60 per hour for each unused machine hour.

(c) You are required to decide whether your recommendation in

(a) above will be altered and, if so, to calculate the new contribution.

Transcribed Image Text:

Part A Part B Maximum call-off (units) 7000 9000 Target price 145 115 per unit per unit Alloy usage 1.6 kilos 1.6 kilos Machine times Line S 0.6 hours 0.25 hours Line T 0.5 hours 0.55 hours Machine details Line S Line T Hours available 4000 4500 Variable overhead 80 100 per machine hour