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M 93 xixch Mexen 4 Key Padang En Permones the wors and repertors can only work Post Wyw whereas and Para produced by empre tengan waning tarments P1 5 W-2 P-2 2 769 44 14 3 2,200 units 50 32 14 1.800 units 12 2.500 units 2.000 The following the rest of the price Phone Houquired for Selling Proper Direct Mate Couter DirectUsbour hourly Rae * Varise Overhead Rate per Maximum demand to be met Welding and Pressing Departments respectively The Company incurs 50,000 per annum towards Fixed Costs. The maximum available hours are 20,000 and 16,000 hours for jobs so that cross demand of any of the products can be met. This decision will increase the burden of Fixed Costs by 5,000 The Production Manager suggests that the welders and press-operators can be trained to perform both welding and pressing per annum Prepare the Profitability Statement for optimum product-mix and recommend with reasons and appropriate workings whether it is advisable to train the welders and press-operators as suggested by the Production Manager. Solution: 1. Optimum Product Mix and Profit before Training Department Welding Dept Time Available 20,000 hours W-2 Product W-1 69 377 50 (a) Selling Price per unit 248 344 7 32 (b) Direct Material Cost per unit 22 18 2x4=28 5x4=20 (c) Direct Labour Costs per unit (at 4 per hr) 4x4=216 4x4=216 3 3 2 (d) VOH per unit (given) 2 (e) Total Variable Costs per unit (b+c+d) 55 355 240 736 ( Contribution per unit (a -e) *22 310 714 12 (9) Machine hours required per unit (given) 4 hours 4 hours 5 hours 2 hours (h) Contribution per m/c hour (f = 9) 3.00 2.50 34.40 7.00 0 Ranking (Department-wise) I II II (1) Minimum Demand to be met 2,000 units 2,500 units 2,200 units (k) Time required for Min. Demand (9 * j) 8,000 hrs 10,000 hrs 4,400 hrs Pressing Dept 16,000 hours P-2 P-1 1,800 units 9,000 hrs (1) Time used towards minimum Demand (m) Balance Time Available (n) Product to be produced (based on Rank) (0) Number of additional units produced 18,000 hours 20000 - 18000= 2,000 hrs W-1 2,000 = 4 = Nil 500 units 2,500 units 2,500 units 30,000 25,000 13,400 hours 16000 - 13400= 2,600 hrs P-2 Nil 2,600 = 2 = 1,300 units 1,800 units 3,500 units 39,600 49,000 (p) Total Production Quantity ( + 0) (4) Total Contribution earned (p xf) r) Fixed Costs 9) Optimum Profit before Training (9-) 1,43,600 50,000 93,600 9.100 Note: After training, the total time is taken as 20,000 16,000 36,000 hours Time required for meeting minimum Demand is 31,400 hours (.e. 8,000 + 10,000+ 9,000 + 1.400). So, the balance of 4,600 hours wil be allocated to the most CVP Analysis and Decorating 2. Optimum Product Mix and Profit after Training profitable product on an overall basis. The allocation and product- misas under W-1 W-2 P-1 P-2 13 (2.50 4.40 7.00 TIT IV IT 1 4,600 hours 4,600 - 2 2,300 units 2,000 units 2,500 units 1,800 units 2,200 units 2,000 units 2,500 units 1,800 units 4,500 units 7 14 12 222 * 10 24,000 +25,000 39,600 63,900 Product a) Contribution per m/hour (as per WN 1h) (b) Ranking (overall basis) C) Balance Time allocated fully to P-2 1) Additional Production of P-2 e) Minimum Demand to be met Total Production Quantity (e + d) (19) Contribution per unit (as per WN 10 1) Total Contribution eamed (P x 9) 5) Fixed Costs (including Additional Costs) Optimum Profit before Training (9-1) 1,51,600 7 55,000 Conclusion: The suggestion given by the Production Manager is acceptable, due to additional profit of 3 96,600 - 93,600 7 96,600 3,000. N 08 Rank I allotment ordi. 0.5 Key Factor - Optimum Product Mix Decision Bloom Ltd makes 3 products, A, B and C. The following information is available: (Figures in per unit) Particulars 550 550 230 Selling Price (peak-season) Selling Price (off-season) laterial Cost Sabour (peak-season) Labour (off-season) ariable Production Overhead 690 690 290 150 149 130 15 7 B 630 604 260 120 99 120 20 11 110 100 100 10 8 Varaible Selling Overhead (only for peak-season) Labour hours required for one unit of production (in hours) Material Cost and Variable Production Overheads are the same for the peak-season and off-season. Variable Selling verheads are not incurred in the off-season. Fixed Costs amount to 26,780 for each season, of which * 2,000 is towards Salary arranty and free maintenance of only Product C, to match competition. Jabour force can be inter-changeably used for all the products. During peak-season, there is labour shortage and the maximum labour hours available are 1,617 hours. During off-season, labour is freely available, but demand is limited to 100 Units of A, 115 units of B and 135 units of C, with production facility being limited to 215 units for A, B and C put together. Sou are required to: 1. Advise the Company about the best product mix during the peak-season for maximum profit . What will be the maximum profit for the off-season? B Solution: 690 290 630 260 120 120 20 520 1. Product Decision and Profits during Peak Season (Figures in :) Product A a) Selling Price per unit 550 ) Variable Costs per unit: Direct Material 230 Direct Labour 110 Variable Overhead - Production 100 Variable Overhead - Selling 10 Sub-Total Variable Cost 450 150 130 15 585 9.101 B 105 7 hours 15 100 8 hours 12.5 110 11 hours 10 TIT 147 units 2,000 20,000 22,000 200 units 231 units 4,780 202 units Nil 20,000 20,000 200 units Pachukas - Students' Handbook on Strategie Cast Management & Performance Evaluation Product Contribution per unit (a - b) () Direct Labour Hours required per unit (e) Contribution per Labour Hour (0) (O Ranking (0) Possible Produktion with DLH of 1,617 hours (1617 + d) 20,000 (1) Specific Fixed Overhead (given) 24,780 ( Other General Fixed Overhead (Total 26,780 less ). 236 units 0 Total Fixed or if the prochuct is produced individually (h+1) ( BEQ (0) be able to recover the Fred Costs. Hence, the Company should produce 202 units of Product A, resulting in a Observation: Comparing (g) and (k) above, it is observed that only Product A should be produced, since Band C will not Contribution of 202 x 100) - 20,200. Profit Contribution 20,200 - Fixed Cost 20,000 - 200. Note: next best profitable product, le. Product A should be preferred Even if Product C has the maximum ranking with respect to Key Factor, it is not profitable to produce. Hence, the B 2. Computation of Contribution per unit during Off-Season (Figures in ) A Product 604 690 (a) Selling Price per unit 550 260 290 (b) Variable Costs per unit:Direct Material 230 100 99 149 Direct Labour 100 120 130 Variable Overhead - Production 430 479 569 Sub-Total Variable Cost (c) Contribution per unit (a - b) 120 125 130 (d) Ranking based on Contribution per unit III II I (e) Maximum Demand 100 units 115 units 135 units Since Overall Total Possible production is only 215 units and there are specific Fixed costs for B and C, the following options Option 2 bution p.u. are available for analysis - Option 3 Contri- Item Option 1 Units Units Contribution Contribution Contribution Units Product A 80 120 Nil Nil 100 12,000 39,600 Product B 125 Nil 115 115 Nil 14,375 14,375 Product C 121 100 12,100 Nil Nil 135 16,335 Total 215 26,475 215 26,375 215 25,935 Less: Fixed Cost *26,780 22,000 24,780 Profit/ (Loss) (305) *4,375 1,155 Best option is to produce 100 units of Product A and 115 units of Product B during off-season. Maximum Profit = 4,375. N07 Y 76.00 Z 58.50 10.6 Key Factor - Optimum Product Mix Decision A Manufacturer produces 3 products whose cost data are as follows - Particulars Direct Materials ( / Unit) 32.00 Direct Labour: Dept. Rate/hour) Hours 1 2.50 18 II 3.00 5 III 2.00 10 Variable Overheads ) 8 Fixed Overheads 4,00,000 per annum. Hours 10 Hours 20 7 4 5 20 4.50 10.50 9.102 The budget was prepared at a time, when market was sluggish. The Budgeted Quantities & Selling Prices are CVP Analysis and Decision-Making Budgeted Quantity (Units) Selling Price I unit) 19,500 135 Later, the market improved and the Sales Quantities could be increased by 20% for product X and 25% each for products Y and 15,600 140 7. The Sales Manager confirmed that the increased Sales could be achieved at the prices originally budgeted. The Production 200 Product X Y Z Wanager stated that the output could not be increased beyond the budgeted level due to the limitation of Direct Labour Hours 15,600 in Department Required: 1. Prepare a statement of Budgeted Profitability. Set Optimal Product Mix and calculate the optimal Profit. Solution: Particulars a) Selling Price per unit b) Direct Material Cost per unit (c) Direct Labour Cost per unit 1. Statement showing Budgeted Profitability 135.00 * 32.00 Y 140.00 76.00 Z