Quarko Co manufactures two products, Xerxes and Yoraths. Noinventories are held. The following data relates to the budget for eachunit of product.

Fixed costs are $13,000 per quarter. Direct materials are known tobe in short supply, with only $600 worth being available to purchaseeach week. There are currently twelve people working in the machiningdepartment (paid $6 per hour) and two in the finishing department (paid$8 per hour). Due to the specialised nature of the work involved in eacharea, skills are not transferable between the departments. Allemployees work a 40-hour week. Assume that there are twelve weeks in thethree month period.

Required:

(a) Calculate the shortfall (in hours) in eachdepartment if production were to reach the expected demand levels at thebudgeted selling prices.

(3 marks)

(b) Calculate the optimum production plan perweek if the company aims to maximise profits, and indicate the budgetedprofit for the three month period.

(12 marks)

(c) Calculate how much Quarko would be willing to pay for more machining hours.
 

Budgeted sales price Direct material costs Machining department time Finishing department time Variable overheads Expected weekly demand (units) Xerxes Yorath $51 $36 $3 $4 4 hours 2 hours 30 minutes 30 minutes $5 $6 100 100