Question 12.RQ.31: Triproduct Ltd makes and sells three types of electronic sec...
Triproduct Ltd makes and sells three types of electronic security systems for which the following information is available:
Standard cost and selling prices per unit
Day scan Product Omni scan
Night scan
£ £ £
Materials 70 110 155
Manufacturing labour 40 55 70
Installation labour 24 32 44
Variable overheads 16 20 28
Selling price 250 320 460
Fixed costs for the period are £450,000 and the installation labour is available for 25,000 hours only in a period and is paid £8 per hour.
Both manufacturing and installation labour are variable costs.
The maximum demand for the products is:
Day scan 2,000 units
Night scan 3,000 units
Omni scan 1,800 units
Requirements
(a) The shortfall in hours of installation labour each period is \boxed{ \ \ \ \ \ \ \ \ \ \ } hours.
(b) In order to maximise profi ts for the next period, the optimum production plan is:
Day scan \boxed{ \ \ \ \ \ \ \ \ \ \ } units
Night scan \boxed{ \ \ \ \ \ \ \ \ \ \ } units
Omni scan \boxed{ \ \ \ \ \ \ \ \ \ \ } units.
● The best production plan in part (b) is that which will maximise the contribution from the installation labour. The products must therefore be ranked in order of their contribution per hour.
(a) 2,900 hours.
Workings:
Hours of installation labour required to satisfy maximum demand
Hours
Day scan*: 2,000 units × 3 hours/unit 6,000
Night scan: 3,000 units × 4 hours/unit 12,000
Omni scan: 1,800 units × 5.5 hours/unit 9,900
27,900
Available hours 25,000
Shortfall 2,900
* Hours of installation labour for Day scan = \frac{£24}{£8} = 3 hours.
(b) Day scan 2,000 units
Night scan 2,275 units
Omni scan 1,800 units
Workings :
Day scan Night scan Omni scan
£ £ £
Selling price 250 320 460
Variable costs
Material (70) (110) (155)
Manufacturing labour (40) (55) (70)
Installation labour (24) (32) (44)
Variable overheads (16) (20) (28)
Contribution per unit 100 103 163
Installation hours required 3 4 5.5
Contribution per installation hour £33.33 £25.75 £29.64
Production priority 1st 3rd 2nd
Best production plan
Units Hours used
Day scan to maximum demand 2,000 ( × 3.0) 6,000
Omni scan to maximum demand 1,800 ( × 5.5) 9,900
This leaves (25,000 – 6,000 – 9,900) = 9,100 installation labour hours for Night scan.
Therefore, production of Night scan = \frac{9,100}{4} = 2,275 units.