Background:
Y Ltd produces and sells a single product, Y1. The unit specifications of the product are as follows:
Direct material AY: 12 kg at £4 per kg
Machine time: 2 running hours
Machine cost per gross hour: £50
Selling price per unit: £180
Y Ltd is required to fulfil orders for 8,000 units of Y1 per year. There are no stocks of product units at the beginning or the end of the year. Also, the stock level of the material AY remains unchanged throughout the year.
The following additional information affects the costs and revenues:
Y Ltd is aware of the problem of excess costs and it is planning a quality management programme to prevent a number of such problems from occurring. The programme will cost £75,000 and it is estimated that the programme will have the following impact:
Question:
Prepare summaries showing the calculations of (i) total production units (pre-inspection), (ii) purchases of material AY (kg), (iii) gross machine hours and (iv) total sales revenue for the year. In each case the figures are required for the situation both before and after the implementation of the quality management programme, in order that the order for 8,000 units of the product may be fulfilled.
Existing |
After TQM Prog |
|
|
||
Total Sales requirements |
8000 |
8000 |
Specification Loss |
400 (8000*5%) |
160 (8000*2%) |
8400 |
8160 |
|
Downgrading at inspection |
1600 (16/84*8400) |
340 (4/96*8160) |
Total Units before inspection |
10000 |
8500 |
|
||
Material required to meet pre inspection production requirement |
120000 (12*10000) |
102000 (12*8500) |
Processing loss |
7659 (6/94*120000) |
1030 (1/99*102000) |
Total Purchases |
127659 |
103030 |
|
||
Initial requirement |
20000 (10000*2) |
17000 (8500*2) |
Idle Time |
5000 (20000*20/80) |
1889 (17000*10/90) |
Gross Time |
25000 |
18889 |
|
14,40,000 (8000*180) |
14,40,000 (8000*180) |
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