Intermediate: Optimal output using the graphical approach MNO Ltd produces two products -W and B. Both are components that have a wide range of industrial applications. MNO Ltd’s share of the market for W is insignificant but it is one of a limited number of suppliers of B. W is a long-established product and B is a new product.

The market price ofW is £128 and that of B is £95. MNO Ltd is unable to influence these prices.

The resource requirements for producing one unit of each of the two products are:

Materials cost £3 per kg and labour costs £3.20 per hour. Other costs are fixed.
During the coming period the company will have the following resources available to it:

You are required, as MNO Ltd’s management accountant:

(a) to advise the company of the output combina¬ tion of W and B that will maximize its profit in the coming period (support your advice with a full financial analysis); (14 marks)

(b) to write a memorandum suitable for circula¬ tion to MNO Ltd’s board of directors explain¬ ing the commercial limitations of the model you have used in your answer to part (a).

Transcribed Image Text:

process hours kg of material labour hours W 4 B 3 8 14.25 21.8 7.5