Question

Sixpence Company produces three products: A129, B325 and C782. All three products use the

same direct material, BRYN. Unit data for each product is as follows:

Product A129 B325 C782

Selling Price per unit $252 $168 $210

Variable Cost per unit

DM $72 $45 $27

Conversion cost per unit $84 $81 $120

Quantity of BRYN per unit 8kg 5kg 3kg

The demand for the companys products far exceeds the direct materials available to produce the

products. BRYN cost $9/K

gand a maximum of 5000kg is available each month. The company must

produce a minimum of 200 units of each product per month.

REQUIRED

1. How many units of each product should the firm produce and sell to maximize income?

2. What is the maximum amount Sixpence would be willing to pay for another 1200kg of

BRYN?

3. Identify reasons why the managers cannot be certain that they have accurately estimated the

following for each product: selling price, variable costs, machine hours needed per unit, and

maximum unit demand per period.

4. Discuss how the business risks in Part 2 might affect the managers' production decisions.

Answer 1

1.

Products	A129	B325	C782
Selling Price per unit	$252	$168	$210
Less: Direct material	$ 72	$ 45	$ 27
Less: Conversion cost	$ 84	$81	$120
Contribution per unit	$ 96	$42	$ 63
Quantity of Bryn used	8 kg	5kg	3kg
Contribution per unit Of Bryn	$12/kg	$8.4/kg	$21/kg
Ranking	2nd	3rd	1st
Quantity produced	200 units 1600 kgs	200 units 1000 kgs	800 units 2400kgs

Maximum income generated=$ 96*200 units+$ 42*200 units+$ 63*800 units

                                                       =$ 78000