ABMC3084 Information for control and decision making

Tutorial 3 : Limiting Factors

Question 1:
Buttercup Ltd manufactures and sells three products (R, S and T). These products are
made using the same machinery. The total machining time available each month is
10,500 hours but this is insufficient to produce all the units of R, S and T required to meet
maximum demands. No stocks of these products are held.

The following information is available:

Product R Product S Product T
Selling price per unit(RM) 60 75 84
Contribution to sales ratio 20% 24% 25%
Machining minutes per unit 40 54 75
Maximum monthly demand (units) 9,000 6,000 3,000

Required:
a) Calculate the monthly shortfall in machining hours. (Answer: 4,650 mach hrs)
b) Determine the monthly production plan in units that will maximise the company’s
total contribution from product R, S and T and calculate this total contribution.
ANSWER: S R T
st nd
Ranking 1 2 3rd
Total contribution = RM 199,800

Question 2:
Dauntless Ltd aims to maximise its profits from the two products (X and Y) which it
manufactures and sells. The selling prices per unit for products X and Y are RM220 and
RM206 respectively. At these prices the company can sell all that it can produce. The
following product cost data is available:
Product X (RM/unit) Product Y (RM/unit)
Material L (RM6 per litre) 30 36
Material M (RM7.50 per litre) 45 30
Other variable costs 55 44
Total variable cost 130 110

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 ABMC3084 Information for control and decision making

In the first three months of next year, supply of material L will be limited to 24,000 litres.
However in the second three month period, both material L and M will be in short supply
and each will be limited to 24,000 litres. The company holds no stocks.

Required:
Determine the optimal production plan in units for the first three months of next year and
the resultant total contribution.
ANSWER:
Ranking X Y
st
1 2nd
Total contribution= RM 432,000

Question 3:
Triproduct Limited makes and sells three types of electronic security system for which
the following information is available.

Product (Per unit) Day scan (RM) Night scan (RM) Omni scan (RM)
Materials 70 110 155
Manufacturing labour 40 55 70
Installation labour 24 32 44
Variable overheads 16 20 28
Selling price 250 320 460

Fixed costs for the period are RM 450,000 and the installation labour, which is highly
skilled, is available for 25,000 hours only in a period and is paid RM8 per hour.
Both manufacturing and installation labour are variable costs.

The maximum demand for the product is:

Day scan Night scan Omni scan
2,000 units 3,000 units 1,800 units

Required:
a) Calculate the shortfall (if any) in hours of installation labour. (Answer: 2,900)
b) Determine the best production plan, assuming that Triproduct Limited wishes to
maximise profit.
(Answer: Day scan= 2,000 units, Night scan= 2,275 units & omni scan= 1,800
units)
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 ABMC3084 Information for control and decision making

c) Calculate the maximum profit that could be achieved from the plan in part (b) above.
(Answer: RM 277,725)

d) Having carried out an investigation of the availability of installation labour, the firm
thinks that by offering RM12 per hour, additional labour would become available and
thus overcome the labour shortage.
Required:
Based on the results obtained above, advise the firm whether or not to implement the
proposal.
(Answer: The firm should not implement the proposal..........)

Question 4:
BVX Limited manufactures three garden furniture products – chairs, benches and tables.
The budgeted unit cost and resource requirements of each these items is detailed below:
Chair (RM) Bench (RM) Table (RM)
Timber cost 5.00 15.00 10.00
Direct labour cost 4.00 10.00 8.00
Variable overhead cost 3.00 7.50 6.00
Fixed overhead cost 4.50 11.25 9.00
16.50 43.75 33.00

Budgeted volumes per annum 4,000 2,000 1,500

These volumes are believed to equal the market demand for these products.
The fixed overhead costs are attributed to the three products on the basis of direct labour
hours.
The labour rate is RM4.00 per hour
The cost of timber is RM2.00 per square metre
The products are made from a specialist timber

A memo from the purchasing manager advises you that because of a problem with the
supplier it is to be assumed that this specialist timber is limited in supply to 20,000 square
metres per annum.
The sales director has already accepted an order for 500 chairs, 100 benches and 150
tables, which if not supplied would incur a financial penalty of RM2,000.
These quantities are included in the market demand estimates above.
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 ABMC3084 Information for control and decision making

The selling prices of the three products are

Chair RM 20.00
Bench RM 50.00
Table RM 40.00

Required:
a) Determine the optimum production plan and state the net profit that this should yield
per annum.
(Answer: Chairs=4,000 units, Tables=1,500 units & Benches=333 units,
Profit=RM7,827
b) Calculate and explain the maximum prices which should be paid per sq. metre in order
to obtain extra supplies of the timber. (Answer: 2+2.33=RM4.33)