Company ABC is a manufacturing company specialized in three auto parts denoted by X, Y, and Z respectively. The company is preparing for the budgets for the next year and has collected the following information: X Y Z Raw materials costs /unit $20 $30 $40 Labor hours needed /unit 0.3 0.2 0.1 Machine hours needed /unit 0.5 1 0.9 Market demand in units 10,000 20,000 15,000 Price in $ $55 $70 $85 The company allocates $10 of variable overhead cost to each labor hour. The total fixed cost for the entire company is $300,000. The company has a total labor budget of $50,000 with an hourly labor cost of $10. After calculation, it costs $0.5 to run the machine for 1 hour. Company’s total budget for running machine is $20,000. Does the company have any constraint? If yes, what is the constraint? Given the constraint, what is the optimal production plan for the company that maximizes the company’s profit? Company ABC has another two products: A and B. A can be sold “as is” (price: $300) or processed further into product A1 (price: $500). B can be sold “as is” (price: $200) or processed further into product B1 (price: $280). The allocated joint costs of A and B are $20 and $10, respectively. The cost of further processing costs of A and B are $185 and $78, respectively. Which product should be processed further and why?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Company ABC is a manufacturing company specialized in three auto parts denoted by X, Y, and Z respectively. The company is preparing for the budgets for the next year and has collected the following information:

	X	Y	Z
Raw materials costs /unit	$20	$30	$40
Labor hours needed /unit	0.3	0.2	0.1
Machine hours needed /unit	0.5	1	0.9
Market demand in units	10,000	20,000	15,000
Price in $	$55	$70	$85

The company allocates $10 of variable overhead cost to each labor hour.
The total fixed cost for the entire company is $300,000.
The company has a total labor budget of $50,000 with an hourly labor cost of $10.
After calculation, it costs $0.5 to run the machine for 1 hour. Company’s total budget for running machine is $20,000.

Does the company have any constraint? If yes, what is the constraint?
Given the constraint, what is the optimal production plan for the company that maximizes the company’s profit?
Company ABC has another two products: A and B. A can be sold “as is” (price: $300) or processed further into product A1 (price: $500). B can be sold “as is” (price: $200) or processed further into product B1 (price: $280). The allocated joint costs of A and B are $20 and $10, respectively. The cost of further processing costs of A and B are $185 and $78, respectively. Which product should be processed further and why?

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