Week 2 Hand-in Assignment
Hype Ltd produces four types of clothes with the use of a special machine. Each labor hour in the special machine costs £10. For the production of the four products the company has 6,800 special machine labor hours. There will be no shortage of any other factor of production. Costings and break-even quantities for the products are as follows:
Products
A (Jeans)
B (Shirts)
C (Jackets)
D (Coats)
Material cost per unit
£20
£30
£60
£100
Special machine labor hours per unit
0.25
0.5
0.4
0.55
Fixed costs
£40,000
£50,000
£70,000
£120,000
BEP (break-even point) quantity
1,000
1,500
1,400
2,100
For each type of product the management of the firm aims at the following targeted profit levels:
Product
Target Profit
A
£100,000
B
£120,000
C
£150,000
D
£200,000
However, the marketing department has conducted a consumer survey and estimated that the actual demand for the products will be different from that corresponding to the targeted profits. The estimated quantity demanded for each product is given in the table below:
Product
Estimated Quantity Demanded
A
3,200
B
3,600
C
4,300
D
5,300
REQUIRED:
Calculate the volume of activity that the company will have to achieve in order to meet the targeted level of profit for each one of the four products.
Calculate the optimal production each of for the four products by taking into account the available labor hours and the estimates of the marketing department.
Propose ways that could help the company to solve the problem of special machine time shortage (around 300 words).
Week 2 Hand-in Assignment
Hype Ltd produces four types of clothes with the use of a special machine. Each labor hour in the special machine costs £10. For the production of the four products the company has 6,800 special machine labor hours. There will be no shortage of any other factor of production. Costings and break-even quantities for the products are as follows:
Products
A (Jeans)
B (Shirts)
C (Jackets)
D (Coats)
Material cost per unit
£20
£30
£60
£100
Special machine labor hours per unit
0.25
0.5
0.4
0.55
Fixed costs
£40,000
£50,000
£70,000
£120,000
BEP (break-even point) quantity
1,000
1,500
1,400
2,100
For each type of product the management of the firm aims at the following targeted profit levels:
Product
Target Profit
A
£100,000
B
£120,000
C
£150,000
D
£200,000
However, the marketing department has conducted a consumer survey and estimated that the actual demand for the products will be different from that corresponding to the targeted profits. The estimated quantity demanded for each product is given in the table below:
Product
Estimated Quantity Demanded
A
3,200
B
3,600
C
4,300
D
5,300
REQUIRED:
Calculate the volume of activity that the company will have to achieve in order to meet the targeted level of profit for each one of the four products.
Calculate the optimal production each of for the four products by taking into account the available labor hours and the estimates of the marketing department.
Propose ways that could help the company to solve the problem of special machine time shortage (around 300 words).
The company has to solve the problem of shortage of resources very strategically. Company has the following options to solve the problem:
a. Increase the number of machine hours by adding new machines, which will involve the investment cost. The company must be very careful while considering the marketing department demand survey, if it is factual and can be achieved and will be for longer period, the company should make this investment. The company should properly analyze the investment by using various techniques such as return on investment, net present value, etc. If the evaluation is favorable the company may go for the new machines.
b. The company may outsource the production of product B, if the demand is for temporary period. But company must make sure that the outsourcing should be done if the cost and quality offered by supplier is better than or equal to what is produced by the company itself. Even if the cost is more than what is produced by the company itself, it should at least create a positive contribution margin after deducting the cost offered by supplier form selling price. The company should also make sure that the supplier will provide the goods in time and there would be stability in the cost, it is possible that at current the supplier offer a cheaper price to obtain the order and then later on, ask for more price.
c. Another way of handling
Sheet1
Products A (Jeans)B (Shirts)C (Jackets)D (Coats)
Material cost per unit 20 30 60 100
Labor cost 2.5 5 4 5.5
Special machine labor
hours per unit 0.25 0.5 0.4 0.55
Fixed costs £40,000 £50,000 £70,000 £120,000
BEP
(break-even point) quantity 1,000 1500 1,400 2100
CM
For each type of product the management of the firm aims at the following targeted profit levels:
Product
Target Profit £100,000 £120,000 £150,000 £200,000
However, the marketing department has conducted a consumer survey and estimated that the actual demand for the products will be different from that corresponding to the targeted profits. The estimated quantity demanded for each product is given in the table below:
Product
Estimated Quantity
Demanded 3,200 3,600 4,300 5,300
A B C D
a
CM per unit = fixed cost/units 40 33.3333333333 50 57.1428571429
Variable cost per unit
Material + labor 22.5 35 64 105.5
Selling price per unit 62.5 68.3333333333 114 162.6428571429
Targetted sales in units
Fixed cost +profit/CM per unit 3500 5100 4400 5600
b
CM per machine hour 160 66.6666666667 125 103.8961038961
Rank 1 4 2 3
Available capacity 6800 machine hours
A 800 3200 units
C 1720 4300 units
D 2915 5300 units
Total hours used 5435
Remaining B 1365 2730 units
Sheet2
Sheet3
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