Question
Pata Ltd. is a small scale company which manufactures three products namely; Xee, Yew and Deez. The company has two departments: Assembly and Machinery which
Pata Ltd. is a small scale company which manufactures three products namely; Xee, Yew and Deez. The company has two departments: Assembly and Machinery which require the same level of labour expertise. The following information relates to the operations of Pata Ltd.: 1. In the period commencing 1 March 2021 and ending 28 February 2021, the company budgeted for: Fixed overheads (Sh.) 3,000,000 Capacity Machinery (hr) 50,000 Assembly department (hr) 75,000 2. The standard costs per unit of each product are: Xee Yew Deez Selling price 2,000 1,580 2,240 Variable costs: 700 400 800 Direct material 480 320 560 Direct labour machinery department (Sh.80 per hour) 480 320 560 Assembly department (Sh.60 per hour) 360 390 420 Total variable costs 1,540 1,110 1,780 3. Information in respect to the maximum demand for each product which Pata Ltd. could alternatively source from an independent supplier, for the same quality, is given below Product Maximum demand (units) Price quoted by external supplier per unit (Sh.) Xee 3,000 1,750 Yew 2,500 1,400 Deez 5,000 2,000 Required: (a) Identify and compute the limiting factor for Pata Ltd. (3 marks) (b) Determine which product(s) should be sourced from the external supplier and the relevant quantities. (4 marks) (c) Based on your recommendations in (c) above, determine the profits for the period commencing 1 March 2020 and ending 28 February 2021. (3 marks) (Total: 10 marks)
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