Question

QUESTION TWO [30] Eating Excellence (Pty) Ltd. manufactures two different stainless steel kitchen apparatus, namely Mixer and Fixer. The products are sold to retailers, who resell the products to their own customers. The management accountant is busy preparing the monthly budget for the next financial year. The company's metal-moulding machine's capacity is limited to 480 hours per month. All the other machines have unused capacity and the other resources are readily available. The sales manager has indicated that she can potentially sell 2 000 units of product Mixer (requiring 400 machine hours to produce) and 3 000 units of product Fixer (requiring 150 machine hours to produce) per month to a variety of customers. The budgeted information per unit for each product is as follows: Mixer Fixer Selling price 100 80 Raw material Variable conversion costs 30 30 Fixed conversion costs(excl. depreciation) 15 8 Depreciation 10 15 Absorption profit per unit 25 7 20 20 Required: 2.1. Determine the number of monthly sales units per product (sales mix) that should be budgeted for the coming financial year in order to maximise the profit. Then calculate the budgeted total monthly contribution that will be derived from this optimum mix. (14)

Answer 1

Estimated sell qty Labour hour required per hour units Profit per unit profit per hour 1 sales qty hours required contribution/unit 1 total contribution Mixer Fixer 2000 3000 4001 150 5 20 251 71 1251 1401 1650 3000 3301 1501 50 30 82500 90000 200 10 25 50 2 Additional unit Hour required Fixed Cost/unit Units reduce Price required Variable cost Fixed Cost of mixer minimum Price required 50 25 75

3 Additional order can not be accepted as we need minimum price 75. 4 if one off customer is offer Rs 70 price then existing customers for 3000 units who buying @ 80 will lose trust and their loyalty will not be with company