Question
Perma Corporation makes three products, A, B and C. The budgeted unit costs and resource requirements of each of these items are given below: Per
Perma Corporation makes three products, A, B and C. The budgeted unit costs and resource requirements of each of these items are given below: Per unit A B C Direct material cost 10 30 20 Direct labour cost 8 20 16 Variable overhead 6 14 12 Budgeted volume per annum (units) 4,000 2,000 1,500 Selling price () 44 100 80 Fixed costs are expected to total 108,000. The cost of direct material is 2.5 per kilo. All three products are made from a specialist material, which is limited in supply at 40,000 kilos per annum. Required: a. Rank the three products in terms of their abilities to maximize contribution (You should support your answers with full numerical workings). b. Prepare an optimal production plan showing the maximum output of each product the company should produce (You should support your answers with full numerical workings). c. Based on your production plan in (b) above, calculate the amount of net profit the company will earn.
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