Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

KUMA makes three products X, Y, and Z. All three products must be offered for sale each month in order to provide a complete market

KUMA makes three products X, Y, and Z. All three products must be offered for sale each month in order to provide a complete market service. The products are fragile and their quality deteriorates rapidly once they are manufactured.

The products are produced on two types of machine and worked on by a single grade of direct labour. Five direct employees are paid Ghc 8 per hour for a guaranteed minimum of 160 hours each per month.

All of the products are first molded on a machine type 1 and then finished and sealed on a machine type 2.

The machine hours requirements for each of the products are as follows.

Produce X

Product Y

Product Z

Hours per unit

Hours per unit

Hours per unit

Machine type 1

1.5

4.5

3.0

Machine type 2

1.0

2.5

2.0

The capacity of the available machine type 1 and 2 are 600 hours and 500 hours per month respectively.

Details of the selling price, unit cost and monthly demand for the three products are as follows

Product H

Product Y

Product C

Ghc per unit

Ghc per unit

Ghc per unit

Selling price 91

174

140

Component cost 22

19

16

Other direct material cost 23

11

14

Direct labour cost at per hour 6

48

36

Overheads 24

62

52

Profit 16

34

22

Maximum monthly demand units 120

70

60

Although KUMA uses marginal costing and contribution analysis as the basis for its decisionmaking activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods inventories are valued in the monthly management accounts at full absorption cost.

Required:

  1. Calculate the machine utilization rate for each machine each month and explain which of the machine is the bottleneck/limiting factor (7 marks)
  2. Using the current system of marginal costing and contribution analysis, calculate the profit maximizing monthly output of the three products. (8 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting For Decision Makers

Authors: Peter Atrill, Eddie McLaney

7th Edition

027378563X, 9780273785637

More Books

Students also viewed these Accounting questions

Question

What is the per-capita cost?

Answered: 1 week ago

Question

Timeline for progress report

Answered: 1 week ago