Question

Financial Information: TV tables dining Tables Chairs Selling Price per unit SAR 1,000 SAR 5,000 SAR 700 Direct Materials cost per 1 Kg of wood timber SAR 50 SAR 50 SAR 50 Kg of wood timber required per unit 10 35 5 Direct Labour hour cost SAR 30 SAR 30 SAR 30 Sales commission per item sold SAR 10 SAR 15 SAR 5 Variable manufacturing overhead per unit SAR 20 SAR 24 SAR 18 Number of labour hours per unit 3 4 2 Budgeted sales in units 300 200 450 Additional Information: Other costs: Production manager annual salary SAR 60,000 Annual marketing costs SAR 10,000- related to TV tables General Expenses SAR 5,000 Annual Fixed manufacturing overhead (excluding depreciation) SAR10,000 (20% relates to TV tables) Annual equipment depreciation SAR 10,000 The company had 8 TV tables and 100 kg of wood timber in stock at the end of September. Company policy is to maintain 20% of the following months sales level as closing inventory for finished goods. Company policy to maintain 25% of next months’ production needs as closing inventory for direct materials. Budgeted sales of TV tables for the next six months are as follows: October November December January February 40 35 20 20 20 Cash collections on sales are as follows: 30% in the month of sale 70% in the month following sale Receivables at the end of September were SAR 22,000 Cash payments on purchases are as follows: 60% in the month of purchase 40% in the following month Payables at the end of September were SAR 6,000 The closing cash balance in September 2018 was SAR 40,000 and it is company policy to maintain cash at this level at the end of each month. The company have access to a 4% bank loan of SAR 70,000 The company paid a dividend of SAR 40,000 in November Cash of SAR 50,000 was invested in the company by a private investor in December.

Using the information above, calculate the following:

Which product is performing the best?

Answer 1

The question asked here is about the best product performer. Hence we will be making a comparison of the contribution from each product category. A business objective is to maximise the profit and hence the product with the maximum contribution will be considered as best performer. A tabular statement is hown below which says that the best performer is the dining table.

Please note that this computatikn is made with the assumption that there is no bottleneck resource.

N.B. Fixed common costs are irrelevant for this computation. Alao the collection information is not relevant

Formula	Particulars	Unit	TV Table	Dining Table	Chairs
A	SP	SAR	1000	5000	700
B	Direct material/KG	SAR	50	50	50
C	Wook in KG required per unit	KG	10	35	5
D = B*C	Direct material cost per unit	SAR	500	1750	250
E	Direct Labour hour cost	SAR	30	30	30
F	Labour hours per unit	HR	3	4	2
G=E*F	Direct Labour cost per unit	SAR	90	120	60
H	Variable manufacturing overhead per unit	SAR	20	24	18
I	Selling Commission per unit	SAR	10	15	5
J	Budgeted Sales	units	300	200	450
K= D+G+H+I	Variable cost per unit	SAR	620	1909	333
L = A-K	Contribution per unit	SAR	380	3091	367
M = L*J	Total contribution	SAR	114000	618200	165150
N	Specific fixed costs	SAR	10000
O=M-N	Contribution net of specific fixed cost	SAR	104000	618200	165150