Question 1. Iris Co. manufactures four products from different combinations of the same direct materials and labour force. The company operates a Just in Time (JIT) system, manufactures to meet customer demand and does not hold stocks. An extract from the provisional budgets of production, sales and costs, for the next quarter, for each of these products is shown below: A small quantity of Material A was purchased some time ago at a cost of $5 per kg and this value was used in the budget. However, the material, which is now in regular use, has a current replacement cost 40% greater at $7 per kg. Material B is purchased as required; its expected cost is $10 per kg. and the data shown in the budget are based on this cost. Employees work flexibly on the products and for the number of hours necessary to meet the production requirements. The overhead costs of each product which are shown above include variable overheads, some specific fixed costs which are identifiable with each product and would be avoided if the product is discontinued. Other general fixed overhead costs are apportioned arbitrarily between the products and are not affected by the mix of products manufactured. The industry in which Iris Co is involved is currently facing considerable uncertainty such that the best estimates of demand from customers for the quarter is: 7,200 units of product W, for $72,000 6,000 units of product X, for $120,000 6,000 units of product Y, for $90,000 8,000 units of product Z, for $240,000 Required: (a) For the quarter in question and based on the provisional budget, compute the expected total contribution and total net profit/loss for each of the four products and Iris Co. overall. Rank the profitability of the four products using whatever analysis you consider reasonable and briefly interpret this. (15 marks) (b) Iris Co. has just been advised by the only local supplier of material B that the quantity of material B that will be available during the next quarter will be limited to 10,000kg($100,000). Accordingly, the company is being forced to reconsider its budget for the next quarter. Taking account of the demand estimates calculate the relevant contribution per dollar of material B and thus determine the optimum production plan given the quantity of material B available. Briefly explain your reasoning. Compute the revised total profit/loss for the quarter. (25 marks) (c) Discuss the options available to the company in view of the limited material supply and the profits computed in (a) and (b) above, (10 marks) Total 50 marks