Q 45

Foto Factors Limited deals in various products. Relevant details of the products are as under:

AW AX AY AZ

Estimated annual demand (units) 5,000 10,000 7,000 8,000

Sales price per unit (GHS) 150 180 140 175

Material consumption

Q (kg) 2 2.5 1.5 1.75

S (kg) 0.5 0.6 0.4 0.65

Labour hours 2 2.25 1.75 2.5

Variable overheads ( based on labour) 75% 80% 100% 90%

Fixed overheads per unit (GHS) (based on 80% capacity utilisation) 10 20 14 16

Machine hours required:

Processing machine hours 5 6 8 10

Packing machine hours 2 3 2 4

Company has a long term contract for purchase of material Q and S at a price of GHS15 and GHS20 per kg respectively. Wage rate for 8 hiurs shift is GHS200.

The estimated overheads given in the above table are exclusive of depreciation expenses. The company provides depreciation on number of hours used basis. The depreciation on each machine based on full capacity utilisation is as follows:

Hours GHS

Processing machine 150,000 150,000

Packing machine 100,000 50,000

The company has launched an advertising campaign to promote the sale of its products. GHS2 million have been spent on such campaign. This cost is allocated to the products on the basis of sale.

Required

Compute the number of units of each product that the company should produce in order to maximize the profit and also compute the product wise and total contribution at optimal product mix.