QUESTION ONE [30] PART A POC Manufactures and sells two types of products to a number of customers. The company is currently preparing its budget for the year ending 31st December which it divides into 12 equal periods. The cost and resource details for each of the product types are as follows: Product M Product F Selling price per unit R200 R210 Variable cost per unit Direct material P( R2.50 per litre) R20 R25 Direct mater Q (R4 per litre) R40 R25 Direct labour (R14 per hour) R28 R35 Overhead (R4 per hour) R16 R20 Fixed production costs R40 R50 Units Units Maximum sales demand in period 1 1000 3000 The fixed production cost per unit is based upon the absorption rate of R20 per labour hour and a total annual production activity of 90 000 labour hours. One twelfth of the annul fixed costs will be incurred in period 1. In addition to the above costs, non-production overhead costs are expected to be R57 750 in period 1. During period 1, the availability of material P is expected to be limited at 31 250 litres. Other materials and sufficient direct labour are expected to be available to meet demand. It is POC policy not to hold stocks of finished goods. Required: 1.1. Calculate the number of units of product M and F that should be produced and sold in period 1 in order to maximise profit. (4) 1.2. Using your answer in 1.1 above, prepare a marginal income statement for period 1. (4) Page 2 of 5 PART B After presenting your statement to the budget management meeting, the production manager has advised you that in period 1 the other resources will also be limited. The maximum resources available will be as follows: Material P 31 250 litres Material Q 20 000 litres Direct Labour 8 750 hours It has been agreed that these factors should be incorporated in into a revised plan and that the objective should be to make be to make as much profit as possible from the available resources. Required: 1.3 Use graphic linear programming method to determine the revised production plan for period 1. State clearly the number of units of product M and F that are to be produced. (10) 1.4. Using your answer in 1.3 above, calculate the profit that will be earned from the revised plan. (3) 1.5. Calculate and explain the meaning of shadow price for material Q. (5) 1.6. Discuss the other factors that should be considered by POC in relation to the revised production plan.