Duntop (Pty) Limited manufactures tyres for cars and bakkies. Speedy tyres are manufactured for cars and Bumpy tyres for bakkies. Mr Mugabe, the managing director has provided you with the following information. • The results of a market survey show that 50 000 Speedy and 40 000 Bumpy tyres can be sold at prices of R200 and R240 per tyre respectively. • A shortage of material exists, resulting in only R 4 620 000 of being available annually. • The flexible budget, at capacity levels of 90% and 100%, indicates that total overheads will amount to R7 984 000 and R8 200 000 for 24 300 and 27 000 machine hours respectively. • The prime cost per tyre is as follows Speedy Bumpy material R 50 R 55 Direct Labour @ R50 per hour R 30 R35 The machining of a Speedy tyre takes 15 minutes and that of a Bumpy tyre 22.5 minutes. 1. Determine the product mix that will maximize the income of the company, assuming a capacity utilization of 100% in terms of machine hours. 2. Calculate the net contribution to profit resulting from the product mix determined in (1.) above.
Duntop (Pty) Limited manufactures tyres for cars and bakkies. Speedy tyres are manufactured for cars and Bumpy tyres for bakkies. Mr Mugabe, the managing director has provided you with the following information.
• The results of a market survey show that 50 000 Speedy and 40 000 Bumpy tyres can be sold at prices
of R200 and R240 per tyre respectively.
• A shortage of material exists, resulting in only R 4 620 000 of being available annually.
• The flexible budget, at capacity levels of 90% and 100%, indicates that total
R7 984 000 and R8 200 000 for 24 300 and 27 000 machine hours respectively.
• The prime cost per tyre is as follows
Speedy Bumpy material R 50 R 55
Direct Labour @ R50 per hour R 30 R35
The machining of a Speedy tyre takes 15 minutes and that of a Bumpy tyre 22.5 minutes.
1. Determine the product mix that will maximize the income of the company, assuming a capacity utilization of 100% in terms of machine hours.
2. Calculate the net contribution to profit resulting from the product mix determined in (1.) above.
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