NUMBER ONE Kimco Ltd is a manufacturing company producing two joint products S, and S, in the ratio of 3:1 at the split-off point. The two products are taken to the mixing plant for blending and refining after the split off point. The following information is also provided: Sales volume (litres) Selling price per litre Joint process costs* Blending and refining costs Product S, Product S 300,000 100,000 Sh.3,500 Sh.7,000 Sh.300,000,000 Sh.100,000,000 Sh.250,000,000 Sh.250,000,000 Sh.50,000,000 Sh.20,000,000 Other separable costs (all variable) *Joint costs are apportioned on the basis of volume The joint process costs are 70% fixed and 30% variable whereas the mixing plant costs are 30% fixed and 70% variable. There are only 5000 hours available in the mixing plant. Usually 4000 hours are taken in processing of Product S, and S., 2000 hours for each product while the remaining 1000 hours are used for other work that generates a contribution of Sh.100,000 per hour. The company is now planning to change the production mix of the joint process to 3:2 for product S, and S2 respectively. This change will result in an increase in the joint cost by Sh.500 for each additional litre of S, produced. Required: (a) Advise the company on whether to change the production mix. (14 marks) (b) Explain other qualitative factors that are important to consider before changing the production mix. NUMBER TWO (6 marks) (Total: 20 marks) A sugar manufacturing company has two plants, one in Voi and the other one in Mumias, producing equivalent grades of sugar. The Voi plant has been operating at 75% of its producing 270,000 tonnes of sugar per month. The Mumias plant has been operating at 60% of its capacity producing 360,000 tonnes of sugar per month. The major raw material used in producing sugar is cane. For each 800 tonnes of sugar, 1000 tonnes of care is required. At the Voi plant, the local cane costs are Sh.1,875 per tonne but the supply is limited to 144,000 tonnes per month. At Mumias plant, local cane costs sh.3000 per tonne and is limited to 400,000 tonnes per month. Additional cane must be purchased through brokers at sh.2,750 per tonne (delivered at either plant). The cost schedules for a typical month's production are as follows: Voi Plant Sh.'000' Raw materials 249,600 tonnes of 468,000 cane Fixed cost per month 594,000 1,026,000 2.088,000 Variable cost Total cost Mumias plant Raw materials 249,600 tonnes of 576,000 cane Fixed cost per month Variable cost 1,080,000 1,404,000 3,060,000 Total cost Required: (a) (i) If the total combined production of both plants is to be maintained at a rate of 630,000 tonnes per month, would there be any apparent advantage in shifting part of the schedule production from one plant to the other? If so, which plant's production should be increased and by how much? (10 marks) (5 marks) What is the amount of the cost saving as a result of this switch? (b) If production requirements increased to 910,000 tonnes, how much would you recommend to be produced at each plant? (5 marks) (Total: 20 marks) NUMBER THREE IMB Electronic Ltd. manufactures and sells a brand of television sets called LD-TVs. The three closest competitor brands in the market are SUM-TVs, SON-TVs. Because of the custom manufacturing process and their inherent high costs, no other competitor has any effect on the current market. The year 2002 was an exceptionally good year in terms of gain-loss trade offs. The year's activity is summarized in the following table: Brand Number of Gain customers Loss Number of customers January 2002 December 2002 LD-TV 2200 500 450 2250 SUM-TV 3000 600 700 2900 SON-TV 2300 250 250 2300 PAL-TV 2500 400 350 2550 Further analysis resulted in the gain-loss summary as follows: Number of customers Number of customers Gain from Losses to LD SUM- SON- PAL- LD- SUM- SON- PAL- TV TV TV TV TV TV TV TV LD-TV 0 400 0 100 0 200 100 150 SUM- 200 0 250 150 400 0 50 250 TV 100 50 0 100 0 250 0 0 SON- 150 250 00 100 150 100 0 TV PAL- TV The market shares for LD-TV, SUM-TV, SON-TV and PAL-TV in January 2002 were 22,30,23 and 25 per cent respectively. Required: (a) Advise the management of IMB Electronic Ltd. on the expected market share for each brand at the end of December 2002. marks) (10 (b) Assuming the same pattern of switching persists, what would be the long run market share for each brand? (5 marks) (c) What are the assumptions of the technique you have used in (a) and (b) above? (5 marks) (Total: 20 marks)