Intermediate: Optimal output using the graphical approach G Limited, manufacturers of superior garden orna¬ ments, is preparing its production budget for the coming period. The company makes four types of ornament, the data for which are as follows:

Fixed overhead amounts to £15 000 per period.
Each type of labour is paid £5 per hour but because of the skills involved, an employee of one type cannot be used for work normally done by another type.
The maximum hours available in each type are:

The marketing department judges that, at the present selling prices, the demand for the products is likely to be:

You are required:

(a) to calculate the product mix that will maxi¬ mize profit, and the amount of the profit;
(14 marks)

(b) to determine whether it would be worthwhile paying Type 1 Labour for overtime working at time and a half and, if so, to calculate the extra profit for each 1000 hours of overtime;
(2 marks)

(c) to comment on the principles used to find the optimum product mix in part (a), pointing out any possible limitations; (3 marks)

(d) to explain how a computer could assist in providing a solution for the data shown above. (3 marks)
(Total 22 marks) CIMA Stage 3 Management Accounting Techniques

Transcribed Image Text:

Product Pixie Elf Queen King (per ( per ( per ( per unit) unit) unit) unit) Direct materials 25 35 22 25 Variable overhead 17 18 15 16 Selling price 111 98 122 326