Question
In: Accounting
The following standard data are available: Product Able Baker Direct materials per unit £10 £30 Rate...
The following standard data are available:
Product Able Baker
Direct materials per unit £10 £30
Rate per hour
Direct labour:
Grinding £5.0 7 hours 5 hours
Finishing £7.5 15 hours 9 hours
Selling price - per unit £206.5 £168
Budgeting production 1200 units 600 units
Maximum sales for the period 1500 units 800 units
Notes: (1) No closing stocks are anticipated.
(2) The skilled labour used for the grinding processes is highly specialised and in short supply, although there is sufficient to meet the budgeted production.
Required: (a) Prepare a statement showing the contribution from each product based on the budgeted production.
(b) If the firm would decide to organise the production based on the maximum sales for the period, how would you prioritise the production, how would you allocate the number of hours per product.
(c) How much is the total contribution (money) of each product in terms of grinding hours used?
Solutions
Expert Solution
| a) Statement showing contribution from each product based on budgeted production | ||||||
| Per unit | Total | |||||
| Able | Baker | Able | Baker | |||
| Budgeted production unit | 1200 | 600 | ||||
| Sales | £ 206.50 | £ 168.00 | a | £ 247,800.00 | £ 100,800.00 | |
| (206.5*1200) | (168*600) | |||||
| Less: Variable cost | ||||||
| Direct Material | £ 10.00 | £ 30.00 | b | £ 12,000.00 | £ 18,000.00 | |
| (10*1200) | (30*600) | |||||
| Direct labour | ||||||
| Grinding | £ 35.00 | £ 25.00 | c | £ 42,000.00 | £ 15,000.00 | |
| (5*7) | (5*5) | (35*1200) | (25*600) | |||
| Finishing | £ 112.50 | £ 67.50 | d | £ 135,000.00 | £ 40,500.00 | |
| (7.5*15) | (7.5*9) | (112.5*1200) | (67.5*600) | |||
| Total Variable cost | £ 157.50 | £ 122.50 | e=b+c+d | £ 189,000.00 | £ 73,500.00 | |
| Total Contribution | £ 49.00 | £ 45.50 | f=a-e | £ 58,800.00 | £ 27,300.00 | |
| b) Organising the production of each product based on maximum sales | ||||||
| Total hour required | ||||||
| Able | Baker | Total | ||||
| Maximum sales unit | 1,500 | 800 | 2,300 | |||
| Grinding | 5 per hour | 7 hr | 5 hr | 10,500 | 4,000 | 14,500 |
| (7*1500) | (5*800) | |||||
| Finishing | 7.5 per hour | 15 hr | 9 hr | 22,500 | 7,200 | 29,700 |
| (15*1500) | (9*800) | |||||
| Total hour | 33,000 | 11,200 | 44,200 | |||
| In order to priorities the production between the two product, we will calculate the contribution per hour. | ||||||
| Able | Baker | |||||
| Contribution p.u. | 49.00 | 45.50 | ||||
| Hour p.u. | ||||||
| Grinding | 7 | 5 | ||||
| Finishing | 15 | 9 | ||||
| Hour p.u. | 22 | 14 | ||||
| Cont/per hour | 2.23 | 3.25 | ||||
|
As we can observe that
contribution per hour is maximum in case of Baker(3.25), so we will
produce Baker first and remaining hours will be used for the
production of Able product(2.23). Accordingly, First 11,200 hours will be used for Baker product and remaining hours to be used for the production of Able product. |
||||||
| c) Total contribution of each product in terms of Grinding hours used | ||||||
| Based on budgeted production | ||||||
| Able | Baker | Total | ||||
| Budgeted production unit | 1200 | 600 | 1,800 | |||
| Grinding hr | 5 per hour | 7 hr | 5 hr | 8,400 | 3,000 | 11,400 |
| (7*1200) | (5*600) | |||||
| Total contribution | 49.00 | 45.50 | £ 58,800.00 | £ 27,300.00 | £ 86,100.00 | |
| Contribution per Grinding hr | 7.00 | 9.10 | 7.55 | |||
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