Question

PDR Co. manufactures 4 products using the same machinery. The following details relate to its 4 products.

	Product A	Product B	Product C	Product D
	$ per unit	$ per unit	$ per unit	$ per unit
Selling price	28	30	45	42
Direct material	5	6	8	6
Direct labor	4	4	8	8
Variable overhead	3	3	6	6
Fixed overhead *	8	8	16	16
Profit	8	9	7	6
Labour hrs.per unit	1	1	2	2
Machine hrs.per unit	4	3	4	5
	Units	Units	Units	Units
Maximum weekly demand	200	180	250	100

*Absorbed based on budgeted labor hours of 1,000 per week.

There is a maximum of 2,000 machine hours available per week

Required:

1. Determine the production plan which would maximize the weekly profit of PDR Co.                                                                                                                     
2. Prepare a profit statement showing the profit your plan would yield.  

Answer 1

Statement Showing compution of Production plan to achieve maximum Profit
	Product A	Product B	Product C	Product D
Selling price	28	30	45	42
Direct Material	5	6	8	6
Direct Labour	4	4	8	8
Variable Overhead	3	3	6	6
Contribution Per unit (a)	16	17	23	22
Machine Hours (b)	4	3	4	5
Contribution Per Machine Hour (a/b)	4.00	5.67	5.75	4.40
Rank	IV	II	I	III
Maximum Weekly Demand ©	200	180	250	100
Total Machine Hour Required (bX c)	800	540	1000	500
Machine Hour can be utilised ( Maximum 2000 Hour) (d)		540	1000	460
Unit can be Produced to Maximize the Profit ( d/b)		180	250	92

Statement Showing profit statement
	Product B	Product C	Product D	Total
Selling price	30	45	42
Direct Material	6	8	6
Direct Labour	4	8	8
Variable Overhead	3	6	6
Contribution Per unit (a)	17	23	22
No. of Unit Produced (b)	180	250	92
Total Contribution earned	3060	5750	2024	10834
Applied Fixed Overhead	1440	4000	1472	6912
Neet Profit	1620	1750	552	3922