A business makes three products, A, B and C. All three products require the use of two types of machines: cutting machines and assembling machines. Estimates for next year include the following:

Fixed costs for next year are expected to total RM42,000. It is the businesss policy for each unit of production to absorb these in proportion to its total variable costs. The business has cutting machine capacity of 5,000 hours a year and assembling machine capacity of 8,000 hours a year.

Required: (a) Identify the limiting factor: cutting machine capacity or assembling machine capacity.

(b) What quantities of each product should the business produce next year?

(c) How much profits would the company make next year based on the quantities determine in (b)?

(d) If there is a limited resource, i.e., resource constraint, that is restricting sales, how will the business maximise its profit? What is your recommendation to maximise profit for the business when there is a resource constraint?

(e) Explain how fixed costs and variable costs behave when the level of activity increases. Consider the effect on cost behaviour on total values and at per unit values.

ProductSellingprice(RMperunit)Salesdemand(units)Materialcost(RMperunit)Variableproductioncost(RMperunit)Timerequiredperunitoncuttingmachines(hours)Timerequiredperunitonassemblingmachines(hours)A252,5001271.00.5B303,4001341.01.0C185,1001030.50.5