Jojo Ltd manufactures products, Abbisha and Babbisha, from raw material, Zaro. The raw material is imported at a cost of R15 per kilogram from Garwe Limited, a foreign company. As a result of a fire that destroyed the warehouse of the supplier, the 2020 import of Zaro will be limited to 80% of the quantity imported in 2019. Following the restrictions on raw material imports, labour hours will, according to estimate, reduce by 10 000 hours in comparison with those worked in 2019. The management of the company, however, has decided to maintain a minimum wage rate of R6 per hour. The following is an extract from the budget for the 2020 financial year based on 95% of the available machine hours. Abbisha Babbisha Sales volume in units 12 000 16 000 Sales volume in rands R348 000 R512 000 R R Standards per unit Raw material - Zaro 12.00 7.50 Labour 4.50 3.00 Overheads 3.00 5.00 The budgeted, fixed manufacturing overheads for the year amount to R63 800. Overheads are allocated to production at a rate of R4 per machine hour. The actual raw material usage during 2019 amounted to 20 000 kilograms. 26 000 labour hours were clocked during 2019. Source: Hunde, T. (2021) Required: Determine the optimal product mix for 2020 and calculate the expected net profit for the same year
Jojo Ltd
Jojo Ltd manufactures products, Abbisha and Babbisha, from raw material, Zaro. The raw material is
imported at a cost of R15 per kilogram from Garwe Limited, a foreign company. As a result of a fire that
destroyed the warehouse of the supplier, the 2020 import of Zaro will be limited to 80% of the quantity
imported in 2019.
Following the restrictions on raw material imports, labour hours will, according to estimate, reduce by
10 000 hours in comparison with those worked in 2019. The management of the company, however,
has decided to maintain a minimum wage rate of R6 per hour.
The following is an extract from the budget for the 2020 financial year based on 95% of the available
machine hours.
Abbisha Babbisha
Sales volume in units 12 000 16 000
Sales volume in rands R348 000 R512 000
R R
Standards per unit
Raw material - Zaro 12.00 7.50
Labour 4.50 3.00
The budgeted, fixed manufacturing overheads for the year amount to R63 800. Overheads are
allocated to production at a rate of R4 per machine hour. The actual raw material usage during 2019
amounted to 20 000 kilograms. 26 000 labour hours were clocked during 2019.
Source: Hunde, T. (2021)
Required:
Determine the optimal product mix for 2020 and calculate the expected net profit for the same
year. (25 Mar
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