Continuation of part (c): "that Diago Ltd must produce in order to maximize operating profit"

Question 1 Diagio Ltd. manufactures four products Alpha, Beta, Gamma and Delta in Tuas View Industrial Park and one product F-1 in Jurong Industrial Estate. Diagio Ltd. operates under Just-in-time (JIT) principle and does not hold any inventory of either finished goods or raw materials. Diagio Ltd. has entered into an agreement with Mallya Ltd. to supply 10,000 units per month of each product produced from Tuas View Industrial Park at a contracted price. Diagio Ltd. is bound to supply these contracted units to Mallya Ltd. without any fail. Following are the details related with non-contracted units of Tuas View Industrial Park. (Amounts in ) Particulars Alpha Beta Gamma Delta Selling price per unit 365.00 290.00 295.00 215.00 Direct labour at $55 per hour 137.50 82.50 165.00 82.50 Direct material M-1 @ $49 per kilo 49.00 98.00 73.50 Direct material M-2 @ $31 per litre 93.00 46.50 62.00 Variable overheads (varies with labour hours) 12.50 7.50 15.00 7.50 Variable overheads (varies with machine 9.00 12.00 9.00 15.00 hours) Total variable cost 301.00 246.50 251.00 178.50 0 0 Alpha Delta Other information Particulars Machine hours per unit Maximum demand per month of non- contracted units Beta 4 95,000 Gamma 3 80,000 90,000 75,000 The products manufactured in Tuas View Industrial Park use direct material M-1 and M-2 but product F-1 produced in Jurong Industrial Estate is made by a distinct raw material Z. Material Z is purchased from the outside market at $210.00 per unit. One unit of F-1 requires one unit of material Z Material Z can also be manufactured at Tuas View Industrial Park but for this 2 hours of direct labour, 3 hours of machine time and 2.5 litres of material M-2 will be required. Required (a) Determine whether Diagio Ltd. should manufacture material Zin Tuas View Industrial Park or continue to purchase it from the market? Support your conclusion with relevant calculations (b) The Purchase manager has reported to the production manager that material M-1 and M-2 are in short supply in the market and only 650,000 kilos of M-1 and 600,000 litres of M-2 can be purchased in a month. Calculate the total monthly usage requirement of direct material M-1 and M-2 at Tuas View Industrial Park and compare it with the available supply in the market to decide if there is any limiting factor. (c) Determine the optimal usage of available resources of Tuas View Industrial Park which will maximise operating profit for Diagio Ltd. In other words, calculate the optimal number of units of each product Alpha, Beta, Gamma, Delta, and Z