QUESTION 4

1. Company ABC is a manufacturing company specialized in three auto parts denoted by X, Y, and Z respectively. The company is preparing for the budgets for the next year and has collected the following information:

	X	Y	Z
Raw materials costs /unit	$20	$30	$40
Labor hours needed /unit	0.3	0.2	0.1
Machine hours needed /unit	0.5	1	0.9
Market demand in units	10,000	20,000	15,000
Price in $	$55	$70	$85

1. The company allocates $10 of variable overhead cost to each labor hour.
2. The total fixed cost for the entire company is $300,000.
3. The company has a total labor budget of $50,000 with an hourly labor cost of $10.
4. After calculation, it costs $0.5 to run the machine for 1 hour. Companys total budget for running machine is $20,000.

Required: (Please note that you should answer the questions in Word offline and please do NOT answer in the Blackboard!!!)

5. Does the company have any constraint? If yes, what is the constraint? (2 marks)
6. Given the constraint, what is the optimal production plan for the company that maximizes the companys profit? (4 marks)
7. Company ABC has another two products: A and B. A can be sold as is (price: $300) or processed further into product A1 (price: $500). B can be sold as is (price: $200) or processed further into product B1 (price: $280). The allocated joint costs of A and B are $20 and $10, respectively. The cost of further processing costs of A and B are $185 and $78, respectively. Which product should be processed further and why? (4 marks)