Alphabet manufactures four types of liquids A, B, C and D. The production manager is responsible for determining the number of litres of products A, B, C and D to produce. The selling price and unit cost details for these products are as follows:

Direct labour costs $6 per hour. During the next three months, the number of direct labour hours is expected to be limited to 1,347 hours. The sales manager has identified the demand for each of the four products during the next three months as follows: A 200 litres C 100 litres B 150 litres D 200 litres These demand levels include the effects of a contract already made between Alphabet and one of its customers, Y Ltd, to supply 20 litres of each of A,B,C and D during the next three months. If Alphabet fails to supply the stipulated litres for each type of liquid, a penalty will be imposed on Alphabet. The penalty is calculated by multiplying the shortfall (in litres) by $6 a litre.

Required: Determined the number of litres of liquids A,B,C and D that the production manager should recommend to produce in order to maximise profits for Alphabet. Compute the profit that the recommended production schedule will yield.

A $/litre 100 $/litre 120 24 18 B $/litre 110 30 15 10 26 29 Selling price Direct material Direct labour Variable overhead Fixed overhead Profit/(Loss) 19 D $/litre 120 66 12 18 26 (2) 12 26 24 16 26 35 20 Note 1: Fixed overhead is computed based on an estimated $16,900 divided by an estimated demand of A,B,C and D (in litres) for the next three months