MEASURING RELEVANT COSTS AND REVENUES FOR DECISION MAKING

Case 1 Selling price p/u R420 DM (R3. 50)per kg. R175 DL (R21per hour). R105 Direct expenses. R17.50

Case 2 Selling price p/u R507. 50 DM (R3. 50)per kg. R140 DL (R21per hour). R210 Direct expenses. R35

Case 3 Selling price p/u R525 DM (R3. 50)per kg. R70 DL (R21per hour). R315 Direct expenses. R17.50

Case 4 Selling price p/u R472. 50 DM (R3. 50)per kg. R105 DL (R21per hour). R157. 50 Direct expenses. R52. 50

Case 5 Selling price p/u R490 DM (R3. 50)per kg. R157. 50 DL (R21per hour). R420 Direct expenses. R35

Case 6 Selling price p/u R560 DM (R3. 50)per kg. R210 DL (R21per hour). R367. 50 Direct expenses. R87.50 a. The forecasted sales units for the coming year are expected to be as follows: Case 1:10,500,Case 2: 8,750 Case3: 15,750 Case4: 6,500Case 5: 4,500, Case 6: 10,750 .

b. While there were only three cases (1-3) being made, there was no issue regarding the availability of the direct materials needed for production. Since the expansion of the range of cases (4-6), this is going to result in a restriction in the availability of the direct materials to 100,000kg for the coming year.

c. To produce all six types of cases, Dunlow Ltd will need to employ a labour force with the same skill set. The concern that Dunlow Ltd has is that only 70,000 hours of direct labour are available for the next 12 months.

d. The fixed overheads for the period are expected to be approximately R1,350,000 and are absorbed using the basis of number of units produced. Practical tasks Use a spreadsheet to complete the following tasks:

1. Calculate whether the direct materials or the direct labour will be a cause for concern with a shortfall in its availability. 2. Calculate the contribution per unit for each case type and show the order of priority for production using the ranking method. 3. Produce a production plan which clearly demonstrates the number of units that should be made of each case type. 4. Calculate the profit that will be achieved by Dunlow Ltd after the production plan identified in Task 3 is adhered to.

Research and presentation Using PowerPoint, provide the following: 5. Prepare and present a PowerPoint presentation to the production manager and the rest of the management team of what other issues could arise from carrying out the production plan suggested in Task 3. Hint: Consider both quantitative and qualitative reasons