Question

QUESTION 1
(a) Akuaba Ltd produces four (4) different types of kitchen cabinets. The Production
Manager is preparing its production mix for the year and has presented the following
Type of Cabinet:
J
F
C
P
Selling Price/Unit (GH₵)
420
360
300
240
Material Price/kg GH₵10
Labour Hour Rate GH₵5/hour
Materials (kg)
10
   8
10
12
Labour Hours
8
10
6
4
Maximum Demand (units)
15,000
12,000
20,000
20,000
Assume that (a) materials are limited to 596,000 kgs; (b) Labour Hours are limited to 480,000
Hours
Required:
(i)
Advise the management on the most profitable mix of production.
(ii)
Compute the total contribution the company would earn from the production mix
determined in (a) above.

b) The market price of both fowls and guinea fowls have dropped as a result of low demand
to GH₵15 and GH₵10 respectively.
AB Farms located at Kasoa produces 60% of fowls and 40% of guinea fowls on her
farms incurring GH₵9 and GH₵8 as variable cost per bird respectively.
The following fixed costs are incurred annually:
GH₵
Staff Cost
48,000
Rent
12,000
Electricity
6,000
Depreciation
8,000
Other Overheads
2,000
Required:
(i)
Calculate the number of fowls and guinea fowls to be produced to break-even.

(ii)
If the profit target is GH₵25,000, how many birds should be produced to meet this
target?

Answer 1

Calculation of contribution per unit of each cabins

Type of cabinet	J	F	C	P
Selling Price/Unit (GH₵)	420	360	300	240
Material(kg)	10	8	10	12
Material cost/Unit (GH₵10/kg)	100	80	100	120
Labour(hrs)	8	10	6	4
Labour cost/Unit (GH₵5/hour)	40	50	30	20
Contribution/Unit	280	230	170	100
Contribution/kg	28	28.75	17	8.33
Rank (Best contribution)	2	1	3	4

As per the contribution/unit shown above and the limiting factors ie,Materials limited to 5,96000 KG and  Labour Hours are limited to 480,000 hours the best product mix is as follows;

	F	J	C	P
Rank (Best contribution)	1	2	3	4
Maximum demand	12000	15000	20000	20000
material required	96000	150000	200000	240000
Labour hrs required	120000	120000	120000	80000
KG of material needed	96000	150000	200000	150000 (5,96,000-(96000+150000+200000))

As you can see from above figures, we have enough kilograms of materials to produce all of kitchen cabinets F,J,C .and the balance requirement is 1,50,000 kg of material from cabinet P.(5,96,000-(96000+150000+200000)).

The total labor hours required is (1,20000+1,20000+1,20,000+50,000)= 4,10,000 Hours.It is inside our limiting hours.

(i)So most profitable mix of production is:

Cabinets	F	J	C	P
units	12000	15000	20000	12500
Contribution/Unit	280	230	170	100
Contribution	3360000	3450000	3400000	1250000

(ii)Total contribution from this product mix = GH₵ 11,460,000