Monty Ltd produces three products, for which the following budgeted figures have been prepared, for a forthcoming period.
Sales revenue $ 25,000 20,000 15,000
Units 4,000 4,000 3,500 Costs $
Direct material 5,000 4,000 2,500
Direct labor 8,000 6,000 3,500
Variable Overhead 5,000 4,000 3,000
Fixed Overhead 3,000 3,000 2,500
The sales director feels that sales of each product could increase by 10%, which would cause an increase in fixed costs of $2,000. Owing to a proposed strike at a supplier, it has been ascertained that direct material may be restricted to $8,000 for the period. You are required to
(a) Calculate the budgeted profit (based on the original budget) for the period, assuming that the strike does not go ahead.
(b) Calculate the value of the shortfall in direct material, from the original budget, if the strike does go ahead.

(c) If the strike does go ahead, calculate the maximum profit that the company could earn, based on the sales director’s observations.
(d) State any problems that may arise if the sales mix calculated in 

(c) above is undertaken, and suggest ways in which such problems could be overcome.