Question

Bulla Ltd has recently expanded its production facility to satisfy a new customer order that will start in six months. As a consequence they will have the opportunity to make use of the spare capacity for the next six months. Financial information on the current products sold by Bulla Ltd is as follows:

	Budget	Standard	Superior
Selling Price	$40	$45	$60
Direct Material	10	12	12
Direct Labour ($10 per hour)	5	10	15
Variable overhead (allocated based on labour hours)	4	8	12
Fixed overhead (allocated based on machine hours)	4	8	8

Required

1. For the next six months, the new production facility has no constraints from either a labour or machine hour perspective. Which product or mix of products should Bulla Ltd produce using this capacity? Show all workings and calculations.

2. Assess whether your answer to (a) would be different if there was a constraint in relation to the labour hours available.

Answer 1