Question
Stone Ltd is a large international automobile components manufacturer which produces three types of components, Alpha, Beta and Gama. The finance department of Stone Ltd
Stone Ltd is a large international automobile components manufacturer which produces three types of components, Alpha, Beta and Gama. The finance department of Stone Ltd is preparing its budgets for the next period.
Budgeted demands, selling prices and standard costs of Alpha, Beta and Gama are as follow.
| Alpha | Beta | Gama |
Budgeted demand (units) | 30,000 | 5,000 | 20,000 |
| $ | $ | $ |
Budgeted selling price | 170 | 300 | 200 |
Standard cost
|
60 15 25 30 130 |
60 45 75 28 208 |
50 30 50 40 170 |
Profit | 40 | 92 | 30 |
Stone Ltd regards itself as a good citizen taking high level of social responsibilities. It has established a Health, Safety and Environment (HSE) department to ensure all its activities are in compliance with the good citizen philosophy. HSE department reported that all the polluted water from processing the components were carefully collected and transported to Recycle Ltd, a company appointed by the government to process industrial polluted water. The quota for next period will be 1,500 liters at a cost of $800 per liter. There is no other way to process the polluted water. It is estimated that each unit of Alpha, Beta and Gama production will generate polluted water of 25ml, 50ml, and 37.5ml, respectively.
Polluted water processing costs have been included in the fixed production overhead allocated on labour hour basis.
Required
Calculate the production mix that could maximize the profit of Stone Ltd. Assume there is no inventory at the beginning of the period.
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