Question

a) Kofi Brokeman Ltd manufactures four products using the same machinery. The following details relate to its cost and sales per unit of each product:                                                                    Fandango       FanChoco      Fanice     Choco Malt                                                                       GHȼ                GHȼ               GHȼ         GHȼ   Selling price                                                  28                   30                  45                42 Direct material                                               5                     6                    8                   6 Direct labour                                                  4                     4                    8                   8 Variable overhead                                          3                     3                    6                   6 Fixed overhead*                                             8                     8                   16                 16 Profit                                                               8                     9                    7                   6 Labour hours                                                 0.25                 0.25              0.50             0.50 Machine hours                                                 4                     3                   4                    5                                                                      Units               Units               Units          Units Maximum demand per week                      200                   180                   250              100 *Fixed costs are GHȼ8,000 per week. There is a maximum of 2000 machine hours available per week. Requirement: Determine the production plan that will maximize the weekly profit of Kofi Brokeman Ltd and prepare a profit statement showing the profit your plan will yield.   

b) Explain the five (5) key functions of budgeting in an organization. (10 marks

Answer 1

Solution:

Statement to determine the ranking

Details	Fandango	FanChoco	Fanice	Choco
Sales price	28	30	45	42
Less: Variable cost P.U
Direct Material	5	6	8	6
Direct labor	4	4	8	8
Variable overheads	3	3	6	6
Variable cost P.U	12	13	22	20
Contribution P.U	16	17	23	22
Machine Hours P.U	4	3	4	5
Contribution per machine hours	4	5.67	5.75	4.4
Ranking	IV	II	I	III

Statement of optimum product mix:

Products	Units	Machine hours P.U	Total Machine hours
Fanice	250	4	1000
FanChoco	180	3	540
Choco Malt = (2000 - 1540)/5	92	5	460
Fandango	-	-	-
Total	522		2000

Note: ChocoMalt is produced at 92 units and Fandango is not produced because of the ranking and there is a limit of 2000 machine hours.

Statement of profit:

Details	FanChoco	Fanice	Choco Malt	Total
Contribution amount	180x17=3,060	250x23=5,750	92x22=2,024	10,834
Fixed cost	-	-	-	-8,000
Profit	-	-	-	2,834