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: Yoghurt Hours per unit Machine Type A Machine Type B Soya Milco Hours per unit Hours per unit 4.5 2.5 1.5 1.0 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: Overheads cost. Selling price Concentrate cost Other direct material cost Direct labour cost @ £8.00 per hour Soya £ per unit 3.0 2.0 Milco £ per unit 1,740 190 110 480 620 340 700 910 220 230 60 240 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 Yoghurt £ per unit 1,400 160 140 360 520 220 600 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.
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: Yoghurt Hours per unit Machine Type A Machine Type B Soya Milco Hours per unit Hours per unit 4.5 2.5 1.5 1.0 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: Overheads cost. Selling price Concentrate cost Other direct material cost Direct labour cost @ £8.00 per hour Soya £ per unit 3.0 2.0 Milco £ per unit 1,740 190 110 480 620 340 700 910 220 230 60 240 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 Yoghurt £ per unit 1,400 160 140 360 520 220 600 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Richard Ltd makes three products, Soya, Milco and Yoghurt. All the three
products must be offered for sale each month in order 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
1.5
1.0
Machine Туре А
Machine Type B
Selling price
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:
Concentrate cost
Soya
£ per unit
Other direct material cost
Direct labour cost @ £8.00 per hour
Overheads
Profit
cost.
4.5
2.5
910
220
230
60
240
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
3.0
2.0
Milco
£ per unit
1,740
190
110
480
620
340
700
Yoghurt
£ per unit
1,400
160
140
360
520
220
600
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.
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