company has a total of 3 factories to produce steel and iron. Every month, the company must meet the following demands: 3200 tonnes of steel and 1000 tonnes of Iron. Each factory has a different shipping cost per tonne (£/tonne) for each product as shown in the table below: Factory Steel Iron 1 200 500 2 800 400 3 500 1000
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
A company has a total of 3 factories to produce steel and iron. Every month, the company
must meet the following demands: 3200 tonnes of steel and 1000 tonnes of Iron. Each factory
has a different shipping cost per tonne (£/tonne) for each product as shown in the table
below:
| Factory | Steel | Iron |
| 1 | 200 | 500 |
| 2 | 800 | 400 |
| 3 | 500 | 1000 |
The warehouses in Factory 1, Factory 2 and Factory 3 can store 2000 tonnes,1500 tonnes and
2500 tonnes of products, respectively. The company is seeking for a solution to minimise the
shipping cost.
a) Based on the table above, determine the optimal monthly assignment plan for the factory.
That is, how many tonnes each factory needs to be shipped to fulfil the demand.
b) Suppose Factory 3 will not be available during the next few months. Keeping the same
demand, is the company able to fulfil the demands? What would be the revised assignment
plan to ensure demand is fulfilled?
c) The cost of raw materials in each factory is shown in the table below. Change the company
objective function to minimize all costs and find the optimal assignment plan. Does the new
solution change from the base case? If yes, how so?
| factory | Steel raw material cost |
Iron raw material cost |
| 1 | 50 | 100 |
| 2 | 70 | 120 |
| 3 | 45 | 130 |
Step by step
Solved in 3 steps
