LIMITING FACTOR DECISION (PRODUCT MIX DECISION) RLtd. isproducing four productsandisplanningits production mixforthonextyear. Estimated cost, salesand production data for the next year are as follows: Products A B c D Selling price per unit 50. 64 106 88 Material cost @ Rs. 2 per kg 12 36 20 24 Labour cost @ Rs. 10 per hour 30 20 70 50 Maximum demand units) 5,000 5,000 5,000 5,000 Required: Prepare optimal production plan under each of the following two assumptions: a) Iflabour hours are limited to 50,000 in next year b)_Ifmaterialislimitedto 110,000 kgs in nextyear. (18) ICAP PAPER AUTUMN 2001 -Q8 ‘Sangdil Limited makes two products, SS and TT. The variable cost per unit is as follows SS. EE Direct Material Rs. 6.00 Rs. 18.00 . Direct Labour (Rs 18.00 perhour) Rs. 36.00 Rs. 18.00 Variable overhead Rs. 6,00 Bs. 6,00 Total Variable Cost Bs.48.00 Bs.4z.0 ‘Theselling price per unitisRs84.00 for SS and Rs 66.00 for TT. During July 2001 theavailable directlabouris limited to 48,000 hours. Sales demand in July is expected to be 18,000 units for SS and 30,000 units for TT. Fixed cost is Rs. 200,000 per month. Determine the profit-maximizing produetion level for he products $S&TT as) "AP PAPER AUTUMN 2006 — Furnishers (Pvt.) Limited manufactures three garden funiture produets ~ Chairs, Benches and Tables. The budgeted data of each of these itemsis as under: Chairs Benches: Tables Budgeted production/sales volume 4,000 2,000 1,500 Selling price per unit (Rs.) 3,000 7.500 7.200 Cost of Timber per unit (Rs.) 750 2.250 1800 Direct labour per unit (Rs.) 600 1,500 1,600 Variable overliead per unit (Rs.) 450 11125 1,200 Fixed overhead per unit (Rs) 675 1687.5 1800 The budgeted volume was worked out by the sales department and the management of the company is of the view that the budgeted volume is achievable and equal to the demand in the market. The fixed overheads are allocated to the three products on the basis of direct labour hours. Production department has provided the following information: «Direct labour rate Rs. 4o per hour + Cost of timber Rs. 300 per cubic meter Scanned with CamScannerAmema from Purchase Manager advises that because of the problem with the supplier only 25,000 cubic metersoftimber shall beavailable. TheSales Directorhasalready acceptedanorderfor thefollowingquantities, which if not supplies would incura financial penalty of Rs.200,000. = Chairs 500 = Benches 100 * Tables 150 ‘These quantities are included in the overall budgeted volume. Required: Work out the optimum production planand caleulate the expected profit that would arise on achievement ofthisplan, Areesh Limited deals in various products. int detai products ar AW AX AY AZ Estimated annual demand (units) 5,000 10,000 7,000 8,000 Sales price per unit (Rs.) 150 180 140 175 Qhe) 2 25 15 175 S(kg) o5 06 04 0.65, Labour hours per unit 2 2.25 1.75 25 Variable overheads per unit (based on tabour cost) 75% 80% 100% 90% Fixed overheads per unit (Rs.) (based on 80% capacity utilization) 10 20 4 16 Processing machine hours 5 6 8 10 Packing machine hours 2 3 2 4 Company has a long term contract for purchase of material Q and $ at a price of Rs. 15 and Rs. 20 per kg respectively. Wage rate for 8 hours shift is Rs. 200. The estimated overheads given in the above table are exclusive of depreciation expenses. The company provides depreciation on number of hours used basis. The depreciation on each machine based on full eapacity utilization isas under: Hours oR Processing machine 150,000 Packing machine 50,000 Thecompanyhaslaunched anadvertisingeampaign to promotethesaleafits products. Rs.2 millionhavebeen spent on such campaign. This cost is allocated to the products on the basis of sale. Required: Computethenumber ofunitsof each productthatthecompany should produceinordertomaximize Jaseem Limited mat havingannual ufactures: item in three differentsizes. All thesizes are manufacturedataplant pacity of 1,800,000 machine hours. Relevant data for each product is given below: Medium Size Large Size Sales price per unit (Rs.) 5 90 130 Direct material cost per unit (Rs.) 25 32 35 Labour hours per unit 3 4 5 Variable overheads per unit (Rs.) 5 7 8 Machine hours per unit 2 4 5 Demand (Units) 210,000 150.000 180,000 Minimum production required (Units) 100,000 100,000 100,000 Other relevant information is as under: i, Cost of the monthly payroll is Rs. 1,500,000, fi, _ Fixed overheads are Rs, 110,000 per month and are allocated on the basis of machine hours. Required: Recommend the numberofunits tobeproduced for each size. (12) Scanned with CamScannerICAP PAPER AUTUMN 2011 — Q 5 Seagull Limited (SI) is engaged in the manufacture of Basketballs, Footballs and Rugby balls for the professional leagues and collegiate play. These balls are produced from different grades of synthetic eather. Relevant information available from SL’s business plan for the manufacture of each unit is as under: Football Basketball Rugby Ball Cost ofleather Rs. 38 Rs.238 Rs. 255 ‘Time required for each unit of product. 2hours thour 1.5 hour Variable overheads based on tabour cost) 65% 50% 60% The labourers are paid at a uniform rate of Rs. 50 per hour. SLallocates fixed averheads to each of the above product at the rate of Rs. 4 per direet labour hour. Following further information is also available: Football Basketball Rugby Ball Annual budgeted sales volume (Units) 5000 3500 2000 Selling price per unit of product (Rs.) 295 397 500 Cost of leather per sq. ft (Rs.) 95 340 510 Theabove sales volumes are based on the market demand for these products. However, due to financialerises, SL is expected to procure only 3,840 sq. ft. of leather from the tanneries. The sales department has already acceptedanorderof8oo footballs, 1,300basketballsand 4oorugbyballs fromarenowned professionalleaguein thecountry. These quantitiesareat’eedy includedin theabove budgeted aalesvolumne. The non-complianveot this order will result in a penalty of Rs, 400,000. Required: Based on the budgeted volumes, determine the optinnum production plan andalsocalenlate thenet profit fortheyear. (16) ICAP PAPER SPRING 2012-Q 5. ‘Bauxite Limited (BL) is engaged in the manufacture and sale of three products viz. Pentagon, Hexagon and Octagon. Following information is available from BL's records for the month of February 2012: Pentagon Hexagon Octagon Sales price per unit (Rs.) 2,300 1,550 2,000 Material cost per Kg. (Rs.) 250 250 250 Labour time per unit (Minutes) 20 30 45 ‘Machine time per unit (Hours) 4 25 3 Net weight per unit of finished produet (Kg) 6 4 5 Yield (%8) 90 95 92 Estimated demand (Units) 10,000 20,000 9,000 Each worker is paid monthly wages of Rs. 15,000 and works a total of 200 hours per month. BL's factory overheads cost per unitisestimated at 20% of the material cost. Fixed overheadsareestimated at Rs. 5million per month and are allocated to each product on the basis of machine hours. 100,000 machine hours are estimated to be available in February 2012. Required: Based onoptimumproduet mix, computeBL'snet profit forthemonthofFebruary2o12, (15) Ginn ICAP PAPER SPRING 2014 - Q7. ‘The following projections are contained in the budget of Scientific Chemicals Limited for the year ending 31 December 2014: i. Annuallocal and export sales Product C031 Product D032 Rs. per unit U1 Rs.perunit Us Local sales 1,965 40,000 1,410 50,000 Export sales 2,100 25,000 1,500 24,000 ii. Raw material and labour per unit Product CO3L Product D032 Raw material-A at Rs. 25 per kg. (Kg.) 4.0 3.0 Raw material-B at Rs. 60 per kg. (Kg.) 35 26 Skilled labour hours at Rs. 250 perhour (Hours) 2.4 20 Semi-skilled hours at Rs. 120 per hour (Hours) 5.0 25 Scanned with CamScanneriii, Variable overheads for each unit of product Cogi and Dog2 are estimated at Rs, 125 and Rs. 60 respectively. iv, Fixed overheads including admin & selling overheads would amount to Rs. 3 million per month. ‘The company is faced with the under-mentioned constraints: ‘© The supplier of material-B can supply 27,700 kg. per month only. * Only 35 skilled workers will be available for each shift of 8 hours while factory will be operated for 25 days in a month on 3 shift basis. Required: Determine optimal production plan for the next year assuming that the company cannot afford to terminate the exportsalescontract because of theheavy damagespayableincaseofdefault. a6) ICAP PAPER SPRI 18-Q1 Sarwar Limited (SL) manufactures two industrial productsi.e. K2 and K9. Italso manufactures other products in accordance with the specification of customers. SL's products require specialised skilled labour. Maximum labour hours available with the company are 300,000 per month. Following information has been extracted from SL's budget: k2 K9 <= Rs. per unit --- Selling price 16,500 26,000 Direct material 6,000 8,000 Direct labonr (Rs. 300 per hour) 4,500 71500 Variable production overheads (based on labour hours) 1,875 3125 Applied fixed production overheads (based on labour hours) 1,500 2,500 ‘Monthly demand (Units) 5,000 8,000 An overseas customer has offered to purchase 3,000 units ofa customizedindustrial produet‘A-1’ata price of Rs. 35,000 each. The duration ofcontract wouldbe onemonth. The cost department hasascertained thefollowing facts in respect of the contract: i, Each unit of A-1 would require 3 units of raw material B-1 and 2 units of raw material C-g. B-1 is available in thelocal marketat Rs. 2,500perunit. However, therequired quantity of C-3isnot availablein thelocal market and would be imported from Sri Lanka at a landed cost of Rs. 2.4 million. ii, Bach unit of A-1 would require 35 labour hours. iii, Aspecialised machinery would be hired for five days. However, dueto certain production schedulingissues, it is difficult for SL to exactly predict when the machine would be required. As a result of negotiations, SL has received the following offers: + Falah Modarba has quoted a rent of Rs. 0.9 million for the entire month. Ifaccepted, SL would be able to sublet the machine at Rs. 20,000 per da * Tech Rentals has quoted a rent of Rs. 57,000 per day and guaranteed availablity of machinery when required. ‘The management believes that itean increase/decrease the production of Ka and Ke, ifrequired. Required: Determine the maximum profit that ean beearned by SL, in theabove situation. (10) Scanned with CamScannerSOLUTION CE ICAP PAPER SPRING 1999 - Q6 Part (i) (a) Labour hours required Hours ‘A (Rs. 30 per unll + Rs, 10 per hour) x £000 unis 15,00 B (Rs. 20 per unlt + Re. 10 per hour) x 5000 units 10,00 C (Rs. 70 per unlt + Rs. 10 per hour) x $000 units D (is. £0 per unt + Rs, 10 per hour) x $000 units =Total hours required Less: Labour hours available (50,000) Shortage 35,000, 5 5 a apse: ki A (Rs) BARS.) CRs) [_DiRs) Selling price per unit 30 64 106] 8 ess: Variable Costs per unit Material 2) (36) (20)] (2a) Labour (30)) (20}} (70) (50) = Contribution per unit 4 a 16] 14] [Contribution pernnit = Js_16 per unit [Rs 24. permit Labour hours per unit zhoursperunit | hours per unit|5 hours per unit Contribution perlabourhour = 7 perbour| Rs.4.operhour }Rs.23 perhour |Rs.2.8 perhour Ranking [3 1 4 2 Optimal Produ Labour hours| Units B 10,0 5,00 D 25,006 5,000 A 000 hours/3 hours per unit) BalancingFig 5001 5,00 Kgs. 30,000] Material required FA (Rs. 12 per unit + Rs, 2 per kp) x 5.000 units B (Rs, 6 per unll + Rs. 2 per kp) x $000 unlts tts. 20 per unit + Rs.2 per ke) x $,000 units D (Rs. 24 per unll x Rs. 2 per ke) x 5,000 units Less: Material quantity available Scanned with CamScannertor & Ranking ‘A(Rs.) B(RS) ERs) DiRs) Selling price per unit 5 64 104 89 Material cost (22) (36)} (20)) (24)| Labour cost Go} 20) (70) o)| = Contribution per unit 8 a 16] 14] |= Contribution perunit = |BsBperunit [Ra Aperunit — |Rar6perunit [Rs perunit Material kgs per unit kg perunit [iSkgperunit —frokgperunit |12 kg per unit Contribution per Kg = [Rs raz perks [Rso4s perky |Rs.26 perky [Rs 17 perkg Ranking 2 a i Optimal Production Plan ‘Material (Ke|___Unii i 50,000] ‘5:009] A 30,000 5,009] D (30,000 kgs + 10 kes per unit) Balancing Fix 30,000 3,000] 110,001 Ine, ICAP PAPER AUTUMN 2001 - Q8 L |__uurs (SS (Rs. 36 per unit + Rs. 18 per hour) x 18,000 unlts 36,000] TT ds. 18 per wall + Rs, 18 por hor) x 30,000 nits 30,000 = Total hours required 166,000] Less: Labour hours available (48,000) |= Shortage 18,000) Note: When question clearly states limiting factor, then we can Teave step 1. Step 2: Contribution per unit of limiting factor & Ran! SS (Rs.) TT (Rs) Selling price per unit, al 6 Less: Variable Costs per unit (38) 2 = Contribution per unit 36 24) |= Contributionperunit = | Rs.36perunit} Labour hours per nit ehoursperunit] 1howrs perunit |Contributionperlabourhour = |Rs.a8perhour| Rs.24perhour Ranking 2 1 Scanned with CamScannerStep 3: Optimal Production Plan Labour hours] Units ‘TT (hour per unit x 30,000 units) 30,000) 30,000) SS (18,000 hours urs per unit) Balancing Fig.| 18,0¢ 9,00 18,000, Een, ‘AP PAPER AUTUMN 2006 - Q8 ‘Stop 1: Verification of Limiting Factor Timber required Cubie Meter [Mandatory Demand (Chairs 1s. 750 per unit + Rs. 300 per cuble meter 500 hates 1,25 Benches iRs. 2.250 per unit + Rs. 0 per euble meter) x 100 benches 75 Tables (ts 1.0 per anit + Rs. 30 per cubic meter) x 150 tables 901 (Chairs (is. 750 per unit ¢ Rs. 300 per cubic meter) x:3500 chairs 8,75 Benches (Rs. 2.250 per unit + Rs. 300 per eubie meter} x 1,900 benches 34.25 rables is. 1.800 per nit + Rs. 300 per cubie meter) x 1.380 tables 0 34.001 Less: Timber available (25,000) 9,00 ‘Step 2: Calculation of contribution per unit of limiting factor & Ranking Chairs (Rs.) Benches (Rs) Tables (Rs) Selling price per unit 3,000 7,500 7.200 Material (Timber) cost (750) (1,800) Direct Labour cost (600) (1,600) Variable overheads cost (450) (4,200) Contribution per unit 7,200 2,600 Cubic meters per unit meter percha jemeter per bench] 6 cubic meter per table Contributionpereubicmeter = |Rs.480percubic meter |Rs.350 per cubic meter_| Rs. 433 pe cuibie mete Ranking I = z ‘Cuble meter Units 1a 50 901 15 75 100 Benches (5.250 euble meter #7.5 euble meter per unit» Balancing figure Scanned with CamScannerSub-way Furnishers (Pvt.) Limi Income Statement For the year ended Rs. [Chairs cts. 1.200 per chalr = 4,000 chairs) +43800,000 Benches (Rs. 2.628 per bench x 400 benches) 2,100,000] Table (is. 2.600 per table x 1.500 tables) 3,900,000| = Contribution 10,800,000 Less: Fixed Cost (ts 48 per tabour hous x 19,000 tabour hours) (8,775,000) [= Net Profit 2,025,000) Wel Calculation of Total direct Jabour hours Hours (Chairs (Rs. 600 per ebair +R. 40 per labour hour} = 15 hours per chairs 4.000 chairs 60,000 Benches (Rs. 1.500 per beach + Rs. 40 per labour hour) = 37.5 hours per bench x 2000 benches, 75,000 Tables (Rs. 1.600 per tabte + Rs. 40 per labour hour! = 40 bours per table x 1.500 tables 60,000 W2 195,000 Fixed overheads per unit = Fixed overheads rate per hour x Labour hours peru Fixed overheads rate per hour x 1g hours per unit IRs, 45 per labour hour Rs. 600 per unit ICAP PAPER SPRING 2010 -Q.5. Packing Machine Hours required Processing | machine machinehours| hours "AW (& hours per unit x00 units) 2 hours per unit x 5000 units) 25,0 10,000] AX (6 hours per units 10.000 unitsk(3 hours per unit x 10,000 units) 60,00 30,000) AY of hours per unit x 7.000 unis) (2 hous per unit x 7.000 units) 36, 14,000 AZ. (10 hours per unit x 8.000 units, (4 hours per unit x 8,000 units) Bo,000] 32,000 = Total hours required 221,04 86,000 Less: Machine hours available (250,000) (100.000) Shortage/(Surplus) 71,000 (1,000) Step 2: Contribution per unit of limiting fuetor & Ranking AW (Rs) _| AX (Rs) _| AY «Rs.) | AZ(RS.) Selling price per unit 159] F 140 175| Material Q ies 15 phe 2hx. 2.8 hes LS hg, 1.78 key (30.00)} (37.50) (26.25) Material S ts 20 ke 0.5 kg, 0.6 kg, 0 ke 065 kt (10.00)} (12.00) {13,00)} Labour (Rs. 200 per hrs #8 hrs} x No. of hrs (0.00)} (56.25) (62.50)] Variable overheads (Labour east 40%) (3750) (35.00 (56.25) = Contribution per unit 22.50 29.25) 17.00 Contribution per uni = [Rs 22.5 per uni Rs, 29.25 per unit Re. 22 per nit_| Rs 17 per unit Processing machine hours per unit [5 hours per unit [6 hours per unit [8 hours per unit] 10 hoursper nt Contribution per processing MET = | Rs.4.sper hour] Rs. 4.875 per hou Rs. 2.75 per hou Rs. 1.7 per hou Ranking z i 3 a Scanned with CamScannerStep 3: Optimal Production Plan Processing machine units hours JAX 60,000 10,000 AW 25,000 5,000 AY 56,000 7,000 AZ. (9,000 muehine hours + 10 kg per watt) 1,169,000 Step 4: Total Contribution at optimal produciton plan Production & Product | Contribution Per unit Sule Units PAW 5.00 AX 70.000] TAY 2.0 [AZ 900 Machine hours required Hours [Mandatory Demand [Small Size (2 machine hours per unit x 100.000 waits) 20, Medium Size (4 machine hours per unit x 100,000 wots) 400, Large Size (S machine hours per unit 100,000 units) 5005 Non-Mandatory demand [Small Size (2 machine hours per unit x 110.000 waits) 2204 Medium Size (4 machine hours per unit x 50.000 waits) 2004 Large Size ($ machine hours per unit $0,000 unit) 40. 1,920,000] Less: Machine hours available 1,800,000)] = Shortage 120,000] Step 2: Contribution per unit of limiting factor & Rankin; ‘Small Size (Rs.| Medium Size (Rs.)] Large Size (Rs, Selling price per unit 7 9 x80] i: Varinhle Costa per! Material cost per unit 5) (32) (3s) Variable overheads cost perunit ( ( s = Contribution per unit 45 5 8 {Contribution per machine hour = is super unit as Be pec unit Rs.29.5 perhour | Re, }2hours perunit |. hoursperunit per hour 5 hours per unit Rs. 17.4 per hour Rankin, Q) (3) (2) Note: Monthly payroll is fixed cost. So, itis Irrelevant for ranking purpose, but can be considered for profi calculation Scanned with CamScanner‘Step 3: Optimal Production Plan /Mandatory Demand [Small Size Large Size /Medium Size Non-Mandatory demand. [Small Size Large Size [Medium Size (60,000 machine hours +4 machine hour per unit) Balancing Fig} Machine hours Units 200,000] 100,00¢ 500,000 100,000 400,000 100,00 20,0 110,006 400,000 80,0 80,000 20,000 1,800.01 EES, ICAP PAPER AUTUMN 2011-Q5 Step 1: Verification of Limiting Factor [Leather required Sqit Footballs is. 38 per unit ¢ Rs. 95 per sq) x 800 foothatls 32 Basketballs (Rs. 238 per unit: Rs. 340 per sq.ft) x 1,00 hasketba ou Rugby Ball (ts. 285 per unit + Rs. $10 per sqft) x 400 rugby balls 20 [Non-Mandatory demand. [Footballs its. 38 per ult + Rs. 95 per sqft) x 4.200 footballs 1.68% Basketballs (Rs. 288 per unlt= Rs. 440 per sq.) 2.200 basketballs 14540] [Rugby Ball (Rs, 285 per unit + Rs. $10 per sqst) x 1.600 rughy balls Bo 550] Less: Leatheravailable (3,840) = Shortage 1,610] Step 2: Calculation of contribution per unit of limiting factor & Ranking Football (Rs.) | Basketball (Rs.) | Rugby Ball (Rs) Selling price per unit 255] 397] 500] Less: Variable Costs per unit /Material (Leather) (38) (238) (255) Labour (ao0)} (5o}} (7a) |Variable overheads (65) (25) (45) = Contribution per unit 92 Bal 125] Contribution per sq.ft = | Rso2perfoothal) |§s.84 perbaskethall | Rs, 125 per rughy ball (0.4 sqft per football 0.7 sq.ft perbasketbal o.g sa.ft per rugby ball = [Rs.2gopersqft |Rs.120persqit | Rs. 250 per sqft Ranking 2 3 i Scanned with CamScannerStep 3: Optimal Production Plan. Sq. Units | Mandatory Demand Rugby Ball 20 400) Football 2 800] Basketball ou 1,300 Non : Rugby Ball Bo 1,600 Football (1,610 sqft +0.4 9. per unt) 1,61 4,025 Basketball 3840 ull Limited come Statement the yearended ——- Rs. ‘Total Contribution Foothall cts, 92 per totball x 4825 footballs) 443,900 Basketball cs. 4 per hashethallx 1.200 basketballs) 109,200) Rugby Ball ts. 128 pee rughy ball x 2.000 rugby bat) 250,000] = Contribution 803,100 Less: Fixed Cost (66,000 Net Profit 737.100) W. Calculation of Total Budgeted direct labour hours Football «2 hours per football x $.000 footballs) 10,000 Basketball (hour per basket x 3.500 basketballs) 3,500 Rugby Ball (1.5 hour per rugby bal x 2.000 rugby balls) 3.000 = Total Budgeted labour hours 6.504 w2 Fixed overhead rate per hour ‘Total Budgeted Labour Hours Rs 4 per hour ‘Total Budgeted Fixed Cost = Rs. 66,000 ‘Total Budgeted Fixed Cost 16,500 hours Ka ICAP PAPER SPRING 2012 -Q5. Step 1: Verification of Limiting Factor. ‘Machine Hours required Machine Hour Pentagon (shours per unity 10,00 units) 40,000] Hexagon (25 per hour x 20,000 unt) 50,000] Octagon 13 hours per unit 9400 units) 27; Total hours required 17,0 Less: Machine hours available (100,000) hortage 17,000 Scanned with CamScanner[Pentagon (R: Hexagon (Rs )| Octagon (Rs. ) Selling price per un 230d 1,551 2,000] Less: Variable Costs perunit Material (W-1) 4,666.67] (4,052.63) (1.35870) Labour (W-2) (25) (37.50)} (56.25)) Variable overheads (W-3) (33.33) (8553) (121.74) = Contribution per unit 475 374.34 463.31 {Contribution per machinehaur = Rearspecunit [Rs.g74s4perunit| Rs. 63:51 por unit 4 hours perunit |2shoursperuait [3 = Rs. 11875 per hea Rs. 149.74 perhou Ranking 3 2 I W-1 Calculation of matetial cost per unit. Pentagon (6 kg per init + 90%) x Rs. 250 per kg = Rs. 1,66.67 Hexagon (4 kg per unit + 95%) x Rs. 250 per kg Rs. 1052.63 Octagon (5 kg per unit + 92%) x Rs. 250 per kg = Rs. 1,358.70 3 caleuliiiarat iliac tees pee alte Pentagon (20 min : 60) hour per unit x Rs. 75 per hour Rs. 25 Hexagon (go min + 60) hour per units Rs. 75 per hour Rs. 375 Octagon (45 min + 60) hour per unit x Rs.75 per hour Rs. 56.25, ‘W-3 Calculation of Variable Overheads per unit Pentagon Hexagon Octagon Total overheads cost per unit (Materia est per walt x 20 %) 33 210.53 271.74 Less: Fixed overheads cost per unit (W-4) (200) (225) (350) = Variable overheads cost per unit iagaa RS 85.53 RS. 121.74 Wel Caleultion offs overhend ne per machine hour &eost sunt Fixed overheads rate perhour = ~—- Total Budgeted Fixed Overheads Budgeted machine Hours: = Bs.5.000,000 100,000 MH = Rs.50 permachine hour Fixed overhead rate per hour x Machine hour per unit = Fixed overheads cost per unit Step 3: Optimal Production Plan Pentagon Hexagon Octagon Rs, 50 per MH_Rs. 50 per MH_ Rs. 50 per MH xahrs 2.5 hrs xghrs Rs.200 pu “Rs.w5pa__Rs. 150 pa ‘Machine hours Units (Octagon 27,00 9,00 Hexagon 50,004 20,004 [Pentagon (23,000 hours #4 MH per unit) 234 575 100,000] Balancing Fis. Scanned with CamScanner| Question 8 _| ICAP PAPER SPRING 2014 -Q Step 1: Verification of Limiting Factor - Material B ‘Material B required Sate “Mandatory [Exports] (ogi 185 he per unit 25.000 uns) 87.500] O32 26 ke per nll x 24,000 units) 62,god wait nasa seas : (Cogu Ashe per unl 0.000 uns) 140,001 oga eke per unl 80.000 wt) 0.00) 419,904 Less: Material B available (27:70 kg per month x 12 mons) (32.400) = Shortage 87.50 Verification of Limiting Factor - Skilled labour hours ‘Skilled Iabour hours required Labour Hours| ‘Mandatory [Exports] Skilled labour honrs per unit C031 2-4 hours per unlt x 25.000 units) 60,00 D032 (2 hour per unit 24.000 units) 8,000] | Non-Mandatary [Local sales} C031 (thurs per unix 4.000 units) 96,000] Doge (2 hour per unk x $0,000 unis) 100,000] 304,00 Less: Skilled labour hours available (3S shied workers x 8 hours sft x 3 shifts x 28 days a month x 12 months) (252000) = Shor 52,000 Hence, there are two limiting factors for local sales. 2 tion per unit of limiting factor § Ranking COSI (RS) | D032 (Rs.) Local Selling price per unit 1,965) 1,410] Less: Variable Costs perunit [Material -.A (Rs 28 per ha x4 ke per unit), (Rs. 25 per ke x3 ke per unit) (100)] (s)| ‘Material - B (Rs, 60 per hax 35k per unt) (Rs. 60 per kgx 26 ke per unit) (210 56) Skilled labour (Rs. 250 per hour x 24 hours per unit) (Rs. 250 per hour x 2 hours per unit) (600 Goo] Semi skilled labour (Rs. 120 per hour x5 hours per unit), (Rs. 120 per hour x 2.5 hour per (600 (300) Variable Overheads cost (125) (60) = Contribution per unit 330 aig] = Contrib! 4 le i = 2.4 hours pernni per unit Contribution per skilled labour hour 137.5 per hou per hour Ranking for labour hours 2 1 Con buona = ; 5 Kgs per unit akg perunit | 2.6 kg per unit Contribution per kg of material B =]Rs.94.3 perkg |Rs. 122.7 per kg Ranking for material B 2 I Scanned with CamScannerSkilled labour Units Material. B. Units hours | Mandatory {Exports} cost 60,00d 25,000 87500] 25,000 Dogz 48, 24,000 62,400] 24,000 Non-Mandatory [Local sal D032 100,000] 50,000 130,00 §0,000 Cosi 44.00 38,333 52500, 15,000 252,000) 332.400] Note: ‘The ate separate production plans for each limiting factor. The Lower of Cogi Non-Mandatory demand units will be produced, because production can not be catried out without any resources, ‘Therefore, only 15,000 units will be produced of Cogi Non-mandatory demand. ‘Step 1: Verification of Limiting Factor ICAP PAPER SPRI is-QL [Labour hours required Hours [Ko (Rs. 4.500 per + Rs. 300 per labour h A-1 (35 labour hours per ix 3,000 urits) ur) x 5,000 units Kg (Rs. 7.500 per unit + Rs. 300 per labour hour) x8,000 units 75,00 200,00 105,009] Less: Labour hours available 100,000) [EShortage 80,000 380,00 Step 2: im 0 K2(Rs) [| K9(Rs) [| A-T(Rs) [Selling price per unit 26,000] 35,00 ‘Less: Variable Costs per unit Material cost (8,000) Material B-1 (Rs. 2.500 per unit x 3 units) eee (7500) [Material C-g (8s. 200,000 + 3,000 units) seeeeene (Boo) Direct labour (Rs. 300 per hour x 35 hours) (7,500)| (10,500) Variable overheads (W-1) (3125) 4.375) = Contribution per unit 7.375] 11,825] |= Contribution perunit = [Reqnasperunit| Re. 7.975 per unil Rs. 1,825 per unit Labour hours per unit 15 hours per unit|25 hours per unit) 35 hours per unit Contribution per labour hour == —_| Rs. 275 per hoar]Rs. 295 per hour rs. 23786 per hour Ranking 3 z 1 Scanned with CamScannerAa 9.120.000 hos +28 hours pee untt) fen 4: Calculation of maximum profi Sarwar Limited (SL) Income Statement Balancing Fig. 300,000] For then nded [Total contribution. Rs. 000 KO (Rs. 7.375 per unit x 7,800 units) 57525 JAcT (Rs. 11825 per unlt x 3,000 unlts) 35.4 =Total Contribution ‘93,000 i cost (W-2) (27,785) ‘Incremental Fixed cost (W-3) (285) 64.930 xv Variable overhead rateper hour x Labour honr per tnit «is. 4.800 ps = Variable overheads cost per unit x Fixed overhead rate per hour (Balaneing Figo xMachine hour per unit Fixed overheads cost per tit Fixed overheads rate per hour = Rs. 100 per hour Total Budgeted Fixed Overheads = Calculation of Totallabourhours. Ke (ts t.500 pe Ko irs. W-3. Calculation of Incremental Fixed Cos a) Costof ret Ei r Rental Cost Less: Subletting income (304 b) enta ech Ret Rental cost dts. $7,000 per day x § days for A-1) Lower of (a) & (b) will be incremental fixed cost. 5.300 pane 15 Wes 15 hours per unit x 5,000 25 hours per units 8,000 units oduct K2 Rs, 125 ple Product A-1 Ratancing Fig. RS. 125 p.hr Xashts__ Rsa8spy Rag pu 2 Caleulation of fixed overhead rate per hour & Cost per unit K2 Rs. 100 per hr sxushrs__ Rs.500 pau ‘Total Budgeted Fixed Overheads Budgeted Hours r dgeted Fixed Overheads (000 hours: Rs. 27,500,000 Labour hours mits 75,000 ——200.000 275.000 Rs. 900,000 18-5 days for A-1)= 25 days x Rs. 20,000 per da___(500,000) 400,000 285,000 Scanned with CamScanner