JDR Ltd manufactures four products using the same machinery. The following details relate to its products: Product A £ per unit Product B £ per unit Product C £ per unit Product D £ per unit Selling price 28 30 45 42 Direct material 5 6 8 6 Direct labour 4 4 8 8 Variable overhead 3 3 6 6 Fixed overhead * 8 8 16 16 Profit 8 9 7 6 Labour hours 1 1 2 2 Machine hours 4 3 4 5 Units Units Units Units Maximum demand per week 200 180 250 100 *Absorbed based on budgeted labour hours of 1000 per week. There is a maximum of 2000 machine hours available per week. Requirement: (a) Determine the production plan which will maximize the weekly profit of JDR Ltd and prepare a profit statement showing the profit your plan will yield. b) The marketing director of JDR Ltd is concerned at the company’s inability to meet the quantity demanded by its customers. One consideration is to overcome this is to increase the number of hours worked using the existing machinery by working overtime. Such overtime would be paid at a premium of 50% above normal labour rates, and variable overhead costs would be expected to increase in proportion to labour costs. Requirement: Critically evaluate this strategy and, as management accountant, prepare a discussion document for the marketing director, stating your findings (quantitative and qualitative) as to the expected increase in contribution (if any) and any issues that could arise and would need to be resolved. (c) Where production capacity (machine hours) is the ‘limiting factor’, critically explain ways (in addition to overtime working) in which management can increase it without having to acquire more plant and machinery.
JDR Ltd manufactures four products using the same machinery. The following details relate to its products:
Product A
£ per unit
Product B
£ per unit
Product C
£ per unit
Product D
£ per unit
Selling price 28 30 45 42
Direct material 5 6 8 6
Direct labour 4 4 8 8
Variable
Fixed overhead * 8 8 16 16
Profit 8 9 7 6
Labour hours 1 1 2 2
Machine hours 4 3 4 5
Units Units Units Units
Maximum demand per week 200 180 250 100
*Absorbed based on budgeted labour hours of 1000 per week.
There is a maximum of 2000 machine hours available per week.
Requirement:
(a) Determine the production plan which will maximize the weekly profit of JDR Ltd and
prepare a profit statement showing the profit your plan will yield.
b) The marketing director of JDR Ltd is concerned at the company’s inability to meet the
quantity demanded by its customers. One consideration is to overcome this is to increase
the number of hours worked using the existing machinery by working overtime.
Such overtime would be paid at a premium of 50% above normal labour rates,
and variable overhead costs would be expected to increase in proportion to
labour costs.
Requirement:
Critically evaluate this strategy and, as
document for the marketing director, stating your findings (quantitative and
qualitative) as to the expected increase in contribution (if any) and any issues that
could arise and would need to be resolved.
(c) Where production capacity (machine hours) is the ‘limiting factor’, critically
explain ways (in addition to overtime working) in which management can
increase it without having to acquire more plant and machinery.
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