Question

TheDon Ltd produces three products but the number of machine hours available is limited to 33000 hours. Details of each product are as follows:

		A		B		C
Selling price per unit		¢40		¢60		¢66
Variable cost per unit		¢30		¢40		¢30
Machine hours per unit		4		10		12
Maximum production and sales (units)		2000		1000		2000

The company’s fixed cost per annum is ¢32,000.

Required:

1. Determine the optimum product mix for TheDon Ltd.
2. Prepare the company’s Budgeted profit and loss account for the year.

Answer 1

a.  optimum product mix for TheDon Ltd :

Product	Units to produced	Machine hours per unit	Total no of hours utilized
C	2000	12	24000
A	2000	4	8000
B	100	10	1000

Workings:

	A	B	C
Selling price per unit	40	60	66
Less: Variable cost	30	40	30
Contribution Margin per unit	10	20	36
Machine hours per unit	4	10	12
Contribution per machine hour	2.5	2	3
Ranking	II	III	I

b.

Budgeted profit and loss account for the year
Sales
A [2000*40]	80000
B [100*60]	6000
C[2000*66]	132000	218000
Less: Variable costs
A [2000*30]	60000
B [100*40]	4000
C [2000*30]	60000	124000
Contribution Margin		94000
Less: Fixed costs		32000
Profit		62000