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Time: 40 minutes Marks: 20

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BD is a food processing company that produces pre-prepared meals for sale to consumers
through a number of different supermarkets. The company specialises in three particular pre-
prepared meals and has invested significantly in modern manufacturing processes to ensure a
high quality product. The company is very aware of the importance of training and retaining
high quality staff in all areas of the company and in order to ensure their production
employees͛ commitment to the company, the employee is guaranteed a weekly salary that is
equivalent to their normal hourly rate of $7 per hour and production runs 20 hours per day.
The meals are produced in batches of 100 units. Costs and selling prices per batch are as
follows:

Meal MS NH OR
$/batch $/batch $/batch
Selling price 340 450 270
Costs:
Ingredient A ($5/kg) 150 120 90
Ingredient B ($10/kg) 70 90 40
Ingredient C ($15/kg) 30 75 45
Labour 21 28 42

There is also a fixed cost of $ 383,400 of which two-third is Non-production overheads.

BD plc has adopted throughput accounting for its short-term decisions.

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(b)‘ BD is preparing its production plans for the next three months and has estimated the
maximum demand from its customer to be as follows:

MS 500 batches
NH 400 batches
OR 350 batches

BD has entered a large contract with a customer ordered 50 batches of each (included above).
If this important contract is not satisfied then BD will have to pay a substantial financial penalty
for non-delivery.

The Production director is concerned at hearing news that ingredients used are expected to be
in short supply for the next three months. BD does not hold inventory of these ingredients and
the supplies of ingredients are expected to be limited to:

Ingredient A 27,000 kilos

Ingredient B 9,000 kilos
Ingredient C 3,000 kilos

The production director has researched the problem and found that ingredient X can be used as
a direct substitute for ingredient A. It also costs the same as ingredient A. There is an unlimited
supply of ingredient X.

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