Johnson Co. Ltd. make and sell two product Q and Z, each of which passes through the same automated production operations. The following estimated information is available for period 1:

Product unit data

Direct material cost

Variable production overhead cost

Overall hours per product unit(hours)0.25 0.15

Production/sales of product Q and Z are 120,000 units and 45,000 units respectively. The selling price per unit for Q and Z are Ghc 60 and Ghc 70 respectively

Maximum demand for each product is 20% above the estimated sales levels.

Total fixed production overhead cost is Ghc 1,470,000. This is absorbed by product Q and Z at an average rate per hour based on the estimated production levels.

Required:

a. Using net profit as a decision measure, show why management of Johnson Co. Ltd. argues that it is indifferent on financial grounds as to the mix of product Q and Z which should be produced and sold and calculate the total net profit for the period. (5 marks)

b. One of the production operations has maximum capacity of 3075 hours which has been identified as identified as a bottleneck which limits the overall production/sale of product Q and Z. The bottleneck hours required per product unit for Q and Z are 0.02 and 0.015 respectively. All other information detailed in (a) still applies

(5 marks)

c. Calculate the mix (units) of products Q and Z which will maximize net profit and the value (GHC) of the maximum profit. The bottleneck situation detailed above still applies. Johnson Co. Ltd. has decided to determine the profit maximizing mix of product Q and Z based the Throughput Accounting principle of maximizing the throughtput return per production hour of the bottleneck resource

Johnson Co. Ltd. make and sell two product Q and Z, each of which passes through the same automated production operations. The following estimated information is available for period Product unit data z Direct material cost 40 Variable production overhead cost 28 4 Overall hours per product unit(hours)0.25 0.15 Production sales of product Q and Z are 120,000 units and 45,000 units respectively. The selling price per unit for Q and Z are Ghe 60 and Ghe 70 respectively Maximum demand for each product is 20% above the estimated sales levels. Total fixed production overhead cost is Ghe 1,470,000. This is absorbed by product Q and Z at an average rate per hour based on the estimated production levels. Required: a Using net profit as a decision measure, show why management of Johnson Co. Ltd. argues that it is indifferent on financial grounds as to the mix of product Q and Z which should be produced and sold and calculate the total net profit for the period. (5 marks) b. One of the production operations has maximum capacity of 3075 hours which has been identified as identified as a bottleneck which limits the overall production/sale of product Q and Z. The bottleneck hours required per product unit for Q and Z are 0.02 and 0.015 respectively. All other information detailed in (a) still applies (5 marks) c. Calculate the mix (units) of products Q and Z which will maximize net profit and the value (GHC) of the maximum profit. The bottleneck situation detailed above still applies. Johnson Co. Ltd. has decided to determ profit maximizing mix of product Q and Z based the Throughput Accounting principle of maximizing the throughtput return per production hour of the bottleneck resource (5 marks) (Total 15 marks) QUESTION 3 You are required to: i. Discuss the factors that are likely to cause managers to submit budget estimates of sales and costs that do not represent their best estimate or expectations of what will actually occur. (8 Marks) ii. Suggest, as a budget accountant, what procedures you would advise in order to minimize the likelihood of such biased estimate arising, (7 Marks)