assuming that raw material is the key factor availability of which is 25 000 kgs and 608697

Aug 29, 2021 | Uncategorized

(Optimizing product mix—More than one limiting factor)

The following cost data are extracted from a company:

Product “x”

Product “y”

Sales (per unit)

Rs. 200

240

Consumption of material

4 kgs

6 kgs

Material cost

Rs. 20

Rs. 30

Direct wages cost

Rs. 30

Rs. 20

Direct expenses

Rs. 10

Rs. 15

Machine hours used

3

2

Overhead expenses:

Fixed

Rs. 10

Rs. 20

Variable

Rs. 30

Rs. 40

Direct wage per hour is Rs. 10

I:Comment on the profitability of each product if both use the same raw material when:

  1. Total sales potential in units is limited.
  2. Total sales potential in value is limited.
  3. Raw material is in short supply.
  4. Production capacity (in terms of machine hours) is the limiting factor.

II:Assuming that raw material is the key factor, availability of which is 25,000 kgs and the maximum sales potential of each product being 4,000 units, find out the product mix which will yield the maximum profit.