1.You are the Management Accountant of Nic Ltd that manufactures and sells optical equipment using the same direct labour work force on all the products. There is a high demand for their products but sometimes the company operates under the constraint of a shortage of labour or materials.

The directors of the company want to increase production by ensuring that it uses the limited resources available to maximise profits by selling the optimum mix of the products. The production team is currently formulating a production plan for the company's two principal products, A and B, and wishes to determine the optimal product mix.

Nic Ltd sold 10,000 units of Product A and 20,000 units of Product B last month (July). The budgeted sales based on the customer demand for the next month (August) are estimated to be 15% more than the last month's sales. The following information per unit is available for these two products:

AB

Selling price45.0050.00

Material X (@5.00 per kg)7.5015.00

Material Y (@2.00 per kg)10.00 6.00

Direct labour (@10.00 per hour)2.501.50

Absorbed overhead (@6.00 per hour)1.500.90

For August, availability of materials and direct labour to the company is as follows: 70,000 kg of material X, 190,000 kg of material Y and 8,000 hours of direct labour. Nic Ltd does not keep any stock of materials, work-in-progress or finished goods.

(i) Prepare calculations to determine the limitations that will prevent Nic Ltd from fulfilling all of the customer demand for August.

(ii) Calculate the optimal production plan for August that would maximise the company's profit (rounding to two decimals). Your answer should also include the calculation of the total contribution based on your optimal plan for August.