Sterling Industries Ltd. manufactures product Z by making and assembling three components, A, B and C. The components are made in a machine shop using three identical machines each of which can make any of the three components. However, the total capacity of the three machines is only 12, 000 machine hours per month and is just sufficient to meet the current demand. Labour for assembling is available according to requirements. Further details are given below.
|
Component |
Machine Hours Per Unit |
Variable Cost Per Unit |
Market Price at which the Component can be purchased |
|
A |
4 |
Rs.48 |
Rs.64 |
|
B |
5 |
Rs.60 |
Rs.75 |
|
C |
6 |
Rs.80 |
Rs.110 |
|
Assembling [per unit of Z] |
— |
Rs.30 |
— |
Fixed cost per month amounts to Rs.50, 000. Product Z is sold at Rs.300 per unit. From next month onwards the company expects the demand for Z to rise by 25%. As the machine capacity is limited, the company wants to meet the increase in demand by buying such numbers of A, B or C which is more profitable.
You are asked to find out the following:
I] Current demand and profits made by the company.
II] Which component and how many units of the same should be bought from the market to meet the increase in demand?
III] Profit made by the company is suggestion in I is accepted?