Question 3

Company Beta manufactures 2 products X and Y using the same type of raw material. The data for the two products for the next period are as given below:

Narration Product X Product Y

Demand in Units 270 000 180 000

Selling Price/Unit $200 $250

Variable Costs per Unit:

Direct Material $60 $100

Direct Labour $50 $40

Production Overhead $30 $20

Allocated Fixed Costs $500 000 $350 000

Raw Materials Required/Unit 5kg 4kg

Direct Labour Hours Required/Unit 10 Hours 8 Hours

The company can obtain 1 800 000 units of raw materials for the period while its maximum production capacity is 4 200 000 direct labour hours.

a) Determine whether raw materials and/or direct labour are/is a limiting factor to the productive capacity of the company. (10 marks)

b) Work out the optimal production plan for the company. (10 marks)

c) Calculate the total contribution and profit that the company can produce under the optimal production plan. (5 marks)