Mercury Bowie Sdn Bhd manufactures two products, the Y and the Z, which have the following standard selling price and standard costs per unit. Y Z RM RM Standard Selling Price 110 118 Direct Materials (RM4 per kg) 32 16 Direct Labour (RM10 per direct labour hour) 60 80 Variables Overhead (RM1 per machine hour) 4 6 During the next accounting period, the availability of resources are expected to be subjects to the following limitations: Direct Materials 3440 kg Direct Labour Hours 2880 hours Machine capacity 2760 hours The marketing department estimated that the maximum sales potential for product Y is limited to 420 units. There is no sales limitation for product Z. You are asked to advise how these limited facilities and resources can best be used so as to gain the optimum benefit from them. Required: a. Determine by graphical means the optimal mix of Y and Z at Mercury Bowie Bhd Sdn Bhd. (Calculate the exact values of Y and Z by using the equations of the lines as appropriate). b. Calculate the contribution achieved by adopting the optimal mix calculated in (a) above. c. Critically evaluate the application of linear programming in management accounting.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mercury Bowie Sdn Bhd manufactures two products, the Y and the Z, which have the following standard selling price and standard costs per unit.

	Y	Z
	RM	RM
Standard Selling Price	110	118
Direct Materials (RM4 per kg)	32	16
Direct Labour (RM10 per direct labour hour)	60	80
Variables Overhead (RM1 per machine hour)	4	6

During the next accounting period, the availability of resources are expected to be subjects to the following limitations:

Direct Materials	3440 kg
Direct Labour Hours	2880 hours
Machine capacity	2760 hours

The marketing department estimated that the maximum sales potential for product Y is limited to 420 units. There is no sales limitation for product Z. You are asked to advise how these limited facilities and resources can best be used so as to gain the optimum benefit from them.

Required:

Determine by graphical means the optimal mix of Y and Z at Mercury Bowie Bhd Sdn Bhd. (Calculate the exact values of Y and Z by using the equations of the lines as appropriate).

Calculate the contribution achieved by adopting the optimal mix calculated in (a) above.

Critically evaluate the application of linear programming in management accounting.

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