1. Tweed Limited (the Company) is engaged in manufacturing and selling two types of jumpers, Classic and Striped. For 2018, you are given the following information: Type of Jumper Classic Striped Market demand (units) 1,400 500 Selling price per unit () 14.00 17.00 Material cost per unit () 2.00 4.00 Labour cost per unit () (at 10/hour) 5.00 6.00 Fixed overhead costs () 5,000

The following additional information is provided: (i) In 2019, the selling prices of these two products and the labour rate are expected to remain constant. However, all variable costs (except labour costs) in 2019 are expected to increase by 10%. (ii) In 2019, the Company is planning to introduce a new product, the Patterned jumper. The expected selling price and relevant costs of this new product are presented below:

Patterned Market demand (units) 500 Selling price per unit () 20.00 Material costs per unit () 6.00 Labour costs per unit () (at 10/hour) 7.00

(iii) Despite the addition of a new product in 2019, fixed costs and market demand for the existing two products are expected to remain in 2018. (iv) Show your workings to two decimal places.

REQUIRED:

(a) List any FOUR assumptions on which Cost-Volume-Profit analysis is based.

(b) Using variable (marginal) costing methods, calculate the net profit (before taxes) for 2018 and 2019, respectively. In your answer, ensure you show the contribution per unit and the total contribution for each product, for 2018 and 2019, respectively. In budgeting for both 2018 and 2019, the Company assumes that all market demand can be satisfied by production. Show your workings.

(c) How many labour hours are required to produce one jumper (for each type of jumper) at Tweed Limited in 2019? How many labour hours at Tweed Limited are needed to satisfy total demand in 2019?

(d) Due to an unexpected labour strike at the Tweed Ltd, the total labour hours in 2019 are limited to 1,175 hours. Considering this limiting factor, provide the managers with a new production schedule for the three products for 2019 to maximise net profit. Provide explanations for your suggested production plan.

(e) Using variable (marginal) costing methods to show the expected net profit using your production plan from part (d).

(f) Using your answer to parts (b)-(e), compare the net profit for Tweed Limited for 2018 and 2019. Provide explanations for the change in profits between the two years. Suggest TWO potential actions that the Company could take to address the limiting constraint mentioned in part (d) in the short term and explain how these would help.