A company manufactures two products, the Largo and the Preema. Both products utilise the same material and require skilled labour. Materials and skilled labour are the only variable costs. Product details are as follows:

Selling price Material costs Skilled labour costs

Largo Preema

70 90 32 40 10 20

Materials cost 8 per kg. Skilled labour costs 10 per hour. For the month of May 2020 maximum expected demand is for 20,000 units of Largo and 15,000 units of Preema. In May 2020 there is expected to be a restriction on the availability of both material and skilled labour. There are 160,000 kgs. of Material available and 40,000 hours of skilled labour. Fixed costs have been identified as 300,000 per month.

Required:

a. Calculate the optimal production plan for May 2020, and the profit made using that production plan. (20 marks)

Part B

The True Company specialises in producing wooden caskets with locks. True Companys costs to produce 5,000 locks annually are:

Direct materials Direct labor Variable overhead Fixed overhead

2,000 1,000 3,000

11,000

An outside supplier has offered to sell True Company similar locks for 1.00 per lock. If the locks are purchased from the outside supplier, 1,200 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for 1,000 per year.

Required

a. Compute how much it costs Real Company to produce a casket.

b. Based only on your answer in (a) should Real Company make or buy the suitcases?

(8 marks)

(2 marks) c. Briefly describe other factors the company should before making the decision to buy.

Part C

Required

Explain, giving examples, the following terms

i. Relevant costs

ii. Sunk costs

iii. Opportunity costs

(5 marks)

A company manufactures two products, the Largo and the Preema. Both products utilise the same material and require skilled labour. Materials and skilled labour are the only variable costs. Product details are as follows: 90 40 Largo Preema Selling price 70 Material costs 32 Skilled labour costs 10 20 Materials cost 8 per kg. Skilled labour costs 10 per hour. For the month of May 2020 maximum expected demand is for 20,000 units of Largo and 15,000 units of Preema. In May 2020 there is expected to be a restriction on the availability of both material and skilled labour. There are 160,000 kgs. of Material available and 40,000 hours of skilled labour. Fixed costs have been identified as 300,000 per month. Required: a. Calculate the optimal production plan for May 2020, and the profit made using that production plan. (20 marks) Part B The True Company specialises in producing wooden caskets with locks. True Company's costs to produce 5,000 locks annually are: Direct materials 2,000 Direct labor 1,000 Variable overhead 3,000 Fixed overhead 11,000 An outside supplier has offered to sell True Company similar locks for 1.00 per lock. If the locks are purchased from the outside supplier, 1,200 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for 1,000 per year. Required a. Compute how much it costs Real Company to produce a casket. (8 marks) b. Based only on your answer in (a) should Real Company make or buy the suitcases? (2 marks) C. Briefly describe other factors the company should before making the decision to buy. (5 marks) A company manufactures two products, the Largo and the Preema. Both products utilise the same material and require skilled labour. Materials and skilled labour are the only variable costs. Product details are as follows: 90 40 Largo Preema Selling price 70 Material costs 32 Skilled labour costs 10 20 Materials cost 8 per kg. Skilled labour costs 10 per hour. For the month of May 2020 maximum expected demand is for 20,000 units of Largo and 15,000 units of Preema. In May 2020 there is expected to be a restriction on the availability of both material and skilled labour. There are 160,000 kgs. of Material available and 40,000 hours of skilled labour. Fixed costs have been identified as 300,000 per month. Required: a. Calculate the optimal production plan for May 2020, and the profit made using that production plan. (20 marks) Part B The True Company specialises in producing wooden caskets with locks. True Company's costs to produce 5,000 locks annually are: Direct materials 2,000 Direct labor 1,000 Variable overhead 3,000 Fixed overhead 11,000 An outside supplier has offered to sell True Company similar locks for 1.00 per lock. If the locks are purchased from the outside supplier, 1,200 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for 1,000 per year. Required a. Compute how much it costs Real Company to produce a casket. (8 marks) b. Based only on your answer in (a) should Real Company make or buy the suitcases? (2 marks) C. Briefly describe other factors the company should before making the decision to buy