Jazz Ltd.

You are a management accountant Jazz Ltd. and you have been asked to review the operations of one area of the company with a view to making operational decisions for the next month. Details of three of the products that you are in involved with are given below:#

Product A B C

Selling price (/unit) 42.00, 57.00, 54.60

Material X (kg/unit) 2.0 3.0 3.0

Material Y (kg/unit) 2.0 2.2 1.6

Direct labour (hours /unit) 0.6 1.2 1.5

Variable production overheads (/unit) 2.20 2.60 2.20

Fixed production overheads (/unit) 3.00 3.20 3.40

Expected demand for next month (units) 1,900 2,000 1,800 Products A, B and C are all sold to customers of Jazz Ltd. Material X, which is not used in any of Jazz Ltd's other products, is expected to be in short supply due to a strike at a major producer of the material. Jazz Ltd has just received a delivery of 11,000 kg and this is expected to be available for next month's production. The company does not expect to be able to obtain further supplies unless it pays a premium price. The normal market price is 5.00 per kg. Material Y is available at a price of 4.00 per kg and plentiful supplies are available. Direct labour is paid 8.00 per hour.

Required: Answer (a), (b) and (c)

(a) Determine the optimum production schedule for Products A, B and C for the next month on the assumption that additional supplies of X are not purchased. (15 marks)

(b) If Jazz Ltd decides to buy more supplies of Material X, suggest what the maximum price per kg that the company could pay. (5 marks)

(c) Discuss the use of marginal costing (variable costing) as a basis for short term decision making. (