QUESTION THREE [25] The ABC Company manufactures two products: Product X is manufactured by Division X and Product Y is manufactured by Division Y. Both products incur costs in the ABC Company's production and packaging departments. The following data relate to the month of June: Division X Division Y Selling price per unit R200.00 R190 Direct labour: production at R7.50 per hour* R7.50 R15 Direct labour: packaging at R5 per hour* R12.50 R10 Other variable costs per unit R80.00 R45 Contribution R100.00 R120 These are the actual hourly wages paid to the departments' employees. You may assume that the production and packaging departments incur no further variable costs. The total capacity available is 1 000 hours per month for production and 1 500 hours per month for packaging. The demand in June is 500 units of product X and 500 units of product Y. Owing to the capacity restrictions in the production and packaging departments, the company had to perform a linear programming exercise to determine the optimal mix of Product X and Product Y. It has shown that 334 units of Product X and 333 units of Product Y should be manufactured in June, and has indicated that the respective shadow prices should be R33.333 per hour for the production department and R26.667 per hour for the packaging department. Required: Calculate the optimal range of transfer prices for the transfer of the services of the production department and the packaging department respectively, to Divisions X and Y. QUESTION THREE [25] The ABC Company manufactures two products: Product X is manufactured by Division X and Product Y is manufactured by Division Y. Both products incur costs in the ABC Company's production and packaging departments. The following data relate to the month of June: Division X Division Y Selling price per unit R200.00 R190 Direct labour: production at R7.50 per hour* R7.50 R15 Direct labour: packaging at R5 per hour* R12.50 R10 Other variable costs per unit R80.00 R45 Contribution R100.00 R120 These are the actual hourly wages paid to the departments' employees. You may assume that the production and packaging departments incur no further variable costs. The total capacity available is 1 000 hours per month for production and 1 500 hours per month for packaging. The demand in June is 500 units of product X and 500 units of product Y. Owing to the capacity restrictions in the production and packaging departments, the company had to perform a linear programming exercise to determine the optimal mix of Product X and Product Y. It has shown that 334 units of Product X and 333 units of Product Y should be manufactured in June, and has indicated that the respective shadow prices should be R33.333 per hour for the production department and R26.667 per hour for the packaging department. Required: Calculate the optimal range of transfer prices for the transfer of the services of the production department and the packaging department respectively, to Divisions X and Y
