In: Accounting
Products A B C
Raw materials per unit (Kg) 10 6 15
Labour hours per unit @ $ 1 per hour 15 25 20
Selling price per ($) 125 100 200
Maximum production (units) 6,000 4,000 3,000
100,000kgs of raw material are available at $ 10 per kg. Maximum production hours are 184,000 with a possibility for a further 15,000 hours in overtime basis at twice the normal wage rate.
(b) Would recommend overtime?
Products | A | B | C | Raw material available | 100,000 | |
Selling price per ($) | 125 | 100 | 200 | Maximum production hours | 184000 | |
Raw material per unit | 10 | 6 | 15 | Overtime hours available | 15000 | |
Labour hours per unit@ $ 1 per hour | 15 | 25 | 20 | |||
Contribution per unit | 100 | 69 | 165 | |||
Labour hours per unit ( labour cost/per hour cost) | 15 | 25 | 20 | |||
Contribution per labour hour | 6.666667 | 2.76 | 8.25 | |||
Ranking | 2 | 3 | 1 | |||
Maximum production | 6000 | 4000 | 3000 | |||
Raw material required | 60000 | 24000 | 45000 | |||
Production units to be produced | 5500 | Nil | 3000 | |||
Labour hours required to produce units | 82500 | 60000 | 142500 | |||
As raw material is the bottle neck and only 3000 units of product C and 5500 units of Product A is to be produced. | ||||||
Still surplus labour hours available as total labour hours required is only 142500 and available hours are 184,000. | ||||||
Hence overtime shall not be accepted. |