Question
The income statement for the most recent financial year is: Product A Product B Total Sales Units 5 000 5 000 10 000 Price R275
The income statement for the most recent financial year is:
| Product A | Product B | Total |
Sales Units | 5 000 | 5 000 | 10 000 |
Price
| R275 | R525 |
|
| R000s | R000s | R000s |
Sales Value (R000s) | 1 375 | 2 625 | 4 000 |
Cost of Sales (R000s) |
|
| 3 700 |
Raw Material | 500 | 1 100 | 1 600 |
Direct Labour | 500 | 375 | 875 |
Manufacturing Overhead - Variable - Fixed |
250 |
625 |
875 350 |
Normal Gross Profit (R000s) |
|
| 300 |
Under-recovered overhead |
|
| 50 |
Variable selling (Product B only) |
|
| 100 |
Actual net profit (R000s) |
|
| 150 |
Notes to the income statement:
a. Each unit of product A requires R100 of raw material, 10 hours of machine time and 4 hours of labour time.
b. Each unit of product B requires R220 of raw material, 25 hours of machine time and 3 hours of labour time.
c. Labour time is restricted to 60 000 hours, and cannot be increased.
d. Maximum machine time capacity is 200 000 hours. Due to Covid-19, the plant was operating at a level that represents 87.5% of maximum capacity. The fixed costs have been recovered on machine hours. The pre-determined recovery rate was based on machine time equal to 100% of capacity and a budgeted fixed manufacturing cost of R400 000. Variable manufacturing overhead is incurred on a machine hour basis.
e. Actual fixed manufacturing overheads had doubled from the initial start-up situation (R200 000), when only product A was produced.
f. Selling expenses are incurred for product B only.
Question 1:
1.1 Define the variables
1.2 Established the objective function
1.3 Establish the limiting factors
1.4 Determine and rank the contribution per limiting factor
1.5 Draw a graph for which the linear programming is required
1.6 Determine the optimal production mix
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