Question

Question 3 (16) Your company manufactures three colours of paint, namely red, yellow and black All paints are sold in 5 litre drums A common ingredient of all the paint manufactured is a product, Z123AB, which is IS imported Only 10,000 htres of product Z123AB are available for import for the financal year ending February 2019 The company forecasts no opening stock on 1 March 2018 and no closing stock on 28 February 2019 The sales manager provided you with the foilowing budget for the next financial year Colour Budgeted Drums Red 1,000 15,000 Yellow Black 500 The cost accountant provides you with the following information regardıng each of the colour paint manufactured Yellow Black Paint Red R175 Selling price per R250 R325 drum Variable cost per R145 R255 R135 drum Product Z123AB 2 Litres 05 Litre 4 Litres needed per drum of colour paint manufactured Required 1 Calculate the number of each colour paint to be manufactured and sold to maxımıze the contribution for the financial year endıng February 2019 Calculate the maxımum budgeted contribution for the next financial year 2 Calculate the total budgeted contrbution (Rand value) for the company for the year endng February 2019, based on your answer in 1

Answer 1

1. For the financial year ending February 2019, we should produce 5,000 Drums of Product Red to maximize our contribution. It generates total contribution of Rs 5,75,000. We have given the ranks to the products based on the Contribution per unit. We have a limiting factor of 10,000 Z123AB material. So, if we do not have any restrictions on the product Red then we should produce only Red for this financial year.

For the next year based on the budget we can produce following number of units for all these products:

Red - 1000 Drums

Yellow - 12000 Drums

Black - 500 Drums

2. Total Contribution for all these products for the Budgeted period is as follows:

Red - Rs 1,15,000 ( 1000 units * 115)

Yellow - Rs 3,60,000 (12000 units * 30)

Black - Rs 35,000 (500 units * 70)

Please refer below screenshot for your reference:

Red Yellow Black Selling Price per Unit 325 250 175 Variable Cosr per Unit 135 145 255 Contibutionper unit 115 30 70 Rank (Based on Contribution) 1 3 2 Z123AB required per Drum 0.5 2 4 No of Drums to be produced & sold 5000 |(10000 liter of Z123AB 2 liter per Drum) Contribution (In Rs) 575000 Budgeted units to be Produced Contribution (In Rs) 1000 12000 500 115000 360000 35000