1. Determine whether the monthly sales demand for the three products can be met by the factory. Show all workings.
2. What monthly production schedule (in terms of the number of hours spent on each product) should Looney Industries select in order to maximize its dollar profits? Show all workings. Explain how you selected this production schedule and calculate its total contribution margin.
3. Explain why this production schedule might have a negative impact on customer value. What might Looney Industries do to remedy this impact?
4. Green-Clean was launched in 2012 as an environmentally friendly alternative to Aqua-Clean. Its higher variable selling expense is explained by its aggressive promotion by the marketing department as an "Eco-friendly option at a lower price". However, as the product becomes established in the market, this cost will decrease. In addition, other variable costs of producing 'green' products are likely to fall over the next few years, due to lower energy usage and cheaper materials. Yet the management accountant has become concerned that the fixed costs for this product line are likely to increase substantially. Looney has always used a variable cost pricing strategy with a fifty percent markup. Comment on the suitability of this pricing strategy in light of the continued production and sale of Green-Clean

Question 4 Looney Industries is a chemical company which produces and sells three cleaning products - Aqua-Clean, Micro-Clean and Green-Clean - to business customers, mostly to the cleaning departments of factories and large office buildings. Each product passes through four production departments, where both labour and machine times are applied. The machine and labour skills required in each department are so specialized that neither machines nor labour can be switched from one department to another. Looney Industries' sales department believes that next month's demand will be 1000 units of Aqua-Clean, 800 units of Micro-Clean and 2000 units of Green-Clean. Their selling prices are $412, $292 and $388 respectively. Cost data for next month is estimated, as follows: Unit costs Aqua- Micro-Clean Green-Clean Clean Direct material $14 $26 $34 Direct labour 132 76 102 Variable overhead 54 40 50 Fixed overhead 30 20 64 Variable selling expenses 6 4 8 Looney Industries' management is planning its production schedule for the next month. The planning is complicated, because there are labour shortages in the community and some machines will be inactive for several weeks due to necessary repairs and maintenance. Management has assembled the following information regarding available machine and labour time by department: Department A B C D Available machine capacity in 12,000 12,000 9,000 12,000 machine hours Available labour in direct labour 14,000 18,000 13,125 10,200 hours Machine hours and direct labour hours required per unit of each product are as follows: (cont'd on next page)Question 4 (cont'd) Product Aqua-Clean Micro-Clean Green-Clean Department A: Direct labour hours 4 2 4 Department A: Direct machine 2 2 4 hours Department B: Direct labour hours 6 4 4. Department B: Direct machine 2 N hours Department C: Direct labour hours 6 Department C: Direct machine 4 O 2 hours Department D: Direct labour hours 2 4 Department D: Direct machine 4 4 hours