Question 3: Beta Harvey Plc is currently preparing its budget for the year ending September 2019. The company manufactures and sells 3 products Beta, Delta and Gamma. The unit selling price and the variable cost structure of each product is budgeted as follows. Delta Gamma Selling price 100 Variable costs Direct labour 24 48 Direct materials 8 Overheads 10 124 32 6 26 7 5 6 Direct labour rate is budgeted at 6 per hour and direct material cost at 2 per kilogram, and fixed costs at 1,300,000 per andum. The production manager has estimated that the company will have a minimum production capacity of 228,000 direct labour hours and the direct material available will be restricted to 598,000 kilograms. A meeting of the board of directors has been convened to discuss the budget and to resolve the problem as to the quantity of each product which should be made and sold. The sales director presented a recent market survey, which reveals the market demand for the company's products will be as follows. Product Beta Units 24,000 12.000 60,000 Delta Gamma The production director proposes that, since Gamma only contributes 12 per unit, the product should no longer be produced, and the surplus capacity transferred to produce additional quantity of Beta and Delta. The sales director does not agree with the proposal. Gamma is considered to be necessary to complement the product range and to maintain customer goodwill. If Gamma is not offered the sales manager believes that the sales of Beta and Delta will be seriously affected. After further discussion, Page 4 of 10 the board decided that a minimum of 10,000 units of each product should be produced. The remaining production capacity would then be allocated so as to achieve maximum profit possible. Required: 1) Compare and contrast the advantages and disadvantages of using Limiting Factor Analysis and linear programming-graphical method as a tool for managerial decision making in companies. (06 marks) 2) Identify the limiting factor for Harvey Plc. (04 marks) 3) Determine the production plan that will optimise the contribution of Harvey Plc. 1 (12 marks) 4) Based on the production plan in requirement (3) above, prepare a profit statement that clearly shows the maximum profit that could be achieved for the year ending September 2019. (03 marks) (Total 25 marks)