Hormiguita Ltd (HL) manufactures concrete bridge beams (CHI) for the civil construction industry. In the coming year, the company plans to sell 1200 CHI beams, which is the maximum expected demand for this type of beam in their markets.

The variable cost and selling price data for CHI is as follows:

Product CHI
Materials per unit (800.00 per ton)	104,000.00
Labour (1200 hours per unit)	51,200.00
Variable overheads per unit	78,000.00
Total variable costs	233,200.00
Selling price	450,000.00

Fixed overhead costs are predicted to be 380,000,000 in the coming year.

With plenty of capacity in the manufacturing plant available, HL is planning on competing with beams UPSILON and ZETA in the developing market for longer-span bridges. These other products (UPSILON and ZETA) use the same materials but different types of labour to the current CHI product range.

Data are as follows:

UPSILON Demand Units	1,500	ZETA Demand Units	1,100
Materials per unit (800.00 per ton)	60,800.00	Materials per unit (800.00)	63,200.00
Labour (1700 hours per units)	44,200.00	Labour (2100 hours per units)	58,800.00
Variable overheads per unit	65,500.00	Variable overheads per unit	77,000.00
Total variable costs	173,500.00	Total variable costs	199,000.00
Proposed selling price	301,000.00	Proposed selling price	333,000.00

Material is expected to be in short supply because of the global logistics crisis and is predicted to be limited to 300,000 tons in the coming year

a) Determine the total quantity of concrete material required to meet the demand for all three products planned for next year.

b) Prepare a production plan for all three products (in units) that makes the most profitable use of the material available.

c) Calculate the profit that the company will make under these constrained conditions, assuming that they will want to maximise profits.

d) Product CHI is a well-established product and the largest customer for the product has already warned HL that, if they do not supply all 800 units, then they will be changing suppliers for all their needs going forward. Other existing customers are expected to follow suit. Discuss the alternatives that HL has and advise them as to what course of action they should take in this highly competitive market.

e) Included in the fixed overheads is a monthly lease payment of 3.000.000 for new plant and equipment required to meet the demand for the three products. This machine replaced an older model with a book value of 15,600,000 that is depreciated at 1,300,000 per annum and that can be sold for 500,000. This machine has no other use. Explain how you would account for the old machine in your decision making if that machine was to be scrapped.