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Pauls Ltd has recently expanded its production facility to satisfy a new customer order that will start in six months. As a consequence, they will
Pauls Ltd has recently expanded its production facility to satisfy a new customer order that will start in six months. As a consequence, they will have the opportunity to make use of the spare capacity for the next six months. Financial information on the current products sold by Pauls Ltd is as follows:
| Budget | Standard | Superior |
Selling Price | $40 | $45 | $60 |
Direct Material | 10 | 12 | 12 |
Direct Labour ($10 per hour) | 5 | 10 | 15 |
Variable overhead (allocated based on labour hours) | 4 | 8 | 12 |
Fixed overhead (allocated based on machine hours) | 4 | 8 | 8 |
Required
- For the next six months, the new production facility has no constraints from either a labour or machine hour perspective. Which product or mix of products should Pauls Ltd produce using this capacity? Show all workings and calculations.
- Assess whether your answer to (a) would be different if there was a constraint in relation to the labour hours available.
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