Question 3: Limiting Factor

ABI Ltd makes two products, the A and the B. Unit variable costs are as follows. AB

Direct Materials

Direct labour (GH3 per hour) Variable Overhead

GH GH 1 3

6 3

1 1 87

The sales price per unit is GH14 per A and GH11 per B. During July 20X2 the available direct labour is limited to 8,000 hours. Sales demand in July is expected to be 3,000 units for A and 5,000 units for B.

Required

Determine the profit-maximising production mix, assuming that monthly fixed costs are GH20,000, and that opening inventories of finished goods and work in progress are nil.