A company makes two products, the variable costs are as follows;

Product AProduct B

Direct materials13

Direct labour (6 per hour)63

Variable overhead 11

87

The sale price of A is 14 and B is 11. During the month of July the availability of Direct Labour is limited to 5000 hours due to staff taking holidays. Sales demand is expected to be 3000 units of A and 5000 units of B.

Monthly fixed costs are 20,000 and opening stocks are zero.

Required:

a)Calculate the deficiency in labour hours for the month.

[4 marks]

b)Determine the priority ranking for production.

[4 marks]

c)Calculate the maximum profit that can be made next month

[8 marks]

d)Calculate the loss of profit due to this limiting factor and consider the maximum amount the company would be willing to pay,per hour for agency staff.

[9 marks]