Question B

2 Section A Answer all questions in this section. 1 Chung runs a small manufacturing business, making three different products: Exe, Wye and Zed. He provides the following budgeted information for next month: Exe Wye Zed 7000 8000 Maximum production and sales (units) 6000 Unit costs: $ Selling price 72 Raw material at $10 per kilo 30 Direct labour 6 $ 90 40 8 $ 136 60 10 Total fixed costs during the period are $750 000. D REQUIRED (a) State two disadvantages of using contribution margin for making business decisions. [2] Additional Information Chung has been advised that, as a result of an industrial action, only 74000 kilos of raw material will be available next month. He has confirmed orders for next month for 5000 units of each product. He is considering two options: Option 1 Make as many units of each product such that he can maximise the profit for the month Option 2 Make a minimum of 5000 units of each product and use the remaining raw material in the most profitable way. REQUIRED (b) Calculate the maximum profit Chung can make from each option. (Note: products are to be produced in quantities of thousands). [13] (c) Advise Chung which option he should choose. Justify your answer by considering both financial and non-financial factors. [5] D [Total: 20) OUCLES & MOE 2017 9693/02/SP/20