3. ASSIGNMENT

This assignment is marked out of 100. It has a 10% weight on your final assessment.

Taylor Furniture produces and sells three kinds of speciality mattresses; Nealy, Tersa and Pelta. Production is a machine-intensive process. Taylor?s variable costs are direct material costs, variable machining costs, and sales commissions. Marion Taylor, the owner, is planning production for the coming year and collects the following data.

NEALY TERSA PELTA

Estimated Demand 1,800 units 4,500 units 39,000 units

Selling Price per unit $3,000 $2,100 $800

Direct material cost per unit $750 $500 $100

Variable machining cost per unit $600 $500 $200

Sales commission on each unit sold 5% 5% 10%

Fixed manufacturing Costs per unit $50 $70 $12

Fixed Marketing Costs per unit $15 $40 $18

Total fixed administration costs amount to $3,750,000.

Annual capacity is 50,000 machine hours which is limited by the availability of machines.

Variable machining costs are $200 per hour.

The production manager has indicated to Marion Taylor that it is not possible to meet the total demand for the three types of mattresses with the available machine hours. Marion has asked you to decide on the product mix for the next year to maximise the profits from the available machine hours.

Required;

Out of the above given data which Marion has collected, list the information which is NOT relevant to deciding the product mix to maximise the contribution to company profits (15 marks).

Using the relevant information given above, calculate the optimum product mix that would maximise the contribution to company profits (50 marks). Estimate the contribution to profits that would result under the product mix that you calculated (15 marks).

Suppose the company can lease additional machining capacity on an as-needed basis. What is the maximum amount that Marion would be willing to pay for each hour of additional machining capacity in the coming year (20 marks)?

3104AFE STATEGIC MANAGEMENT ACCOUNTING INDIVIDUAL ASSIGNMENT Assessment weight: 10% Due date and time: 16th May 2016, before 8:00 am 1. SUBMISSION All submissions should be made on line which is a requirement under University Policy. No hard copies will be accepted. The submission point can be found in the \"Assignment\" folder under the \"Assessment\" option of the course web site at Learning @ Griffith. Your submission should be in a Microsoft Word format file. You must attach a standard cover sheet to your assignment. A copy of a standard coversheet is given in the \"Assignment\" folder under the \"Assessment\" option of the course web site at Learning @ Griffith. 2. NOTE To be fair by all the students in this course: 1. No extensions will be granted (refer the course profile). 2. Convenors/ tutors will not give any individual feedback/help/clarification on the work prior to submission. Any information relating to the Assignment will be posted on the web or announced in the lectures so that everybody gets the same information. 3. ASSIGNMENT This assignment is marked out of 100. It has a 10% weight on your final assessment. Taylor Furniture produces and sells three kinds of speciality mattresses; Nealy, Tersa and Pelta. Production is a machine-intensive process. Taylor's variable costs are direct material costs, variable machining costs, and sales commissions. Marion Taylor, the owner, is planning production for the coming year and collects the following data. NEALY TERSA PELTA Estimated Demand 1,800 units 4,500 units 39,000 units Selling Price per unit $3,000 $2,100 $800 Direct material cost per unit $750 $500 $100 Variable machining cost per unit $600 $500 $200 Sales commission on each unit sold 5% 5% 10% Fixed manufacturing Costs per unit $50 $70 $12 Fixed Marketing Costs per unit $15 $40 $18 Total fixed administration costs amount to $3,750,000. Annual capacity is 50,000 machine hours which is limited by the availability of machines. Variable machining costs are $200 per hour. The production manager has indicated to Marion Taylor that it is not possible to meet the total demand for the three types of mattresses with the available machine hours. Marion has asked you to decide on the product mix for the next year to maximise the profits from the available machine hours. Required; A. Out of the above given data which Marion has collected, list the information which is NOT relevant to deciding the product mix to maximise the contribution to company profits (15 marks). B. Using the relevant information given above, calculate the optimum product mix that would maximise the contribution to company profits (50 marks). Estimate the contribution to profits that would result under the product mix that you calculated (15 marks). C. Suppose the company can lease additional machining capacity on an as-needed basis. What is the maximum amount that Marion would be willing to pay for each hour of additional machining capacity in the coming year (20 marks)