Explain in detail different types of pricing strategies that can be adopted by companies to maximise their profitability. b. Richard Ltd makes three products, Soya, Milco and Yoghurt. All the three products must be offered for sale each month in order to provide a complete market service. The products are fragile and their quality deteriorates rapidly shortly after production. The products are produced on two types of machine and worked on a single grade of direct labour. Fifty direct employees are paid £8.00 per hour for a guaranteed minimum of 160 hours per month. All the products are first pasteurised on a machine type A and then finished and sealed on a machine type B. The machine hour requirements for each of the products are as follows: Soya Milco Yoghurt Hours per unit Hours per unit Hours per unit Machine Type A 1.5 4.5 3.0 Machine Type B 1.0 2.5 2.0 The capacity of the available machines type A and B are 6,000 hours and 5,000 hours per month respectively. Details of the selling prices, unit costs and monthly demand for the three products are as follows: Soya £ per unit 910 220 230 60 Milco £ per unit 1,740 190 110 480 620 340 700 Yoghurt £ per unit 1,400 160 140 360 520 220 600 Selling price Concentrate cost Other direct material cost Direct labour cost @ £8.00 per hour Overheads 240 Profit 160 Maximum monthly demand (units) 1200 Although, Richard Limited uses marginal costing and contribution analysis as the basis for its decision making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods inventories are valued in the monthly management accounts at full absorption cost. You are required to: a. Calculate the monthly machine utilisation rate for each product and explain which machines is the bottleneck /limiting factor. b. Use current system of marginal costing and contribution analysis to calculate the profit maximising monthly output of the three products. c. Explain why throughput accounting might provide more relevant information in Richard’s circumstances. d. Use a throughput approach to calculate the throughput –maximising monthly output of the three products e. Explain the throughput accounting approach to optimising the level of inventory and its valuation. Contrast this approach to the current system employed by Richard.

Explain in detail different types of pricing strategies that can be adopted by companies to maximise their profitability. b. Richard Ltd makes three products, Soya, Milco and Yoghurt. All the three products must be offered for sale each month in order to provide a complete market service. The products are fragile and their quality deteriorates rapidly shortly after production. The products are produced on two types of machine and worked on a single grade of direct labour. Fifty direct employees are paid £8.00 per hour for a guaranteed minimum of 160 hours per month. All the products are first pasteurised on a machine type A and then finished and sealed on a machine type B. The machine hour requirements for each of the products are as follows: Soya Milco Yoghurt Hours per unit Hours per unit Hours per unit Machine Type A 1.5 4.5 3.0 Machine Type B 1.0 2.5 2.0 The capacity of the available machines type A and B are 6,000 hours and 5,000 hours per month respectively. Details of the selling prices, unit costs and monthly demand for the three products are as follows: Soya £ per unit 910 220 230 60 Milco £ per unit 1,740 190 110 480 620 340 700 Yoghurt £ per unit 1,400 160 140 360 520 220 600 Selling price Concentrate cost Other direct material cost Direct labour cost @ £8.00 per hour Overheads 240 Profit 160 Maximum monthly demand (units) 1200 Although, Richard Limited uses marginal costing and contribution analysis as the basis for its decision making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods inventories are valued in the monthly management accounts at full absorption cost. You are required to: a. Calculate the monthly machine utilisation rate for each product and explain which machines is the bottleneck /limiting factor. b. Use current system of marginal costing and contribution analysis to calculate the profit maximising monthly output of the three products. c. Explain why throughput accounting might provide more relevant information in Richard’s circumstances. d. Use a throughput approach to calculate the throughput –maximising monthly output of the three products e. Explain the throughput accounting approach to optimising the level of inventory and its valuation. Contrast this approach to the current system employed by Richard.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 17E

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