Not enough labour hours

Merioneth

Hi

Am trying to do a past paper from the Kaplan Book where you don't have enough labour hours and they are asking which product you should start producing first.

How do you start doing this?

It also wants the direct labour hur cost per KG of equivalent finished product.

And How many need to be sold per month to achieve profit.

Help!

visha

There appears to be 2 separate questions on your thread. Not information is given, but for the first question I presume it is to do with LIMITING FACTOR.

LIMITING FACTOR

INFORMATION[/………………………...….Alpha……….Beta………Gamma
Sales and production..(Units)………….1,000……….200………...500
Selling price per unit ……(SP)…………...£50………..£120……….£80
Direct Materials per unit (VC) ……….…£11……….£24…………£16

Direct Labour per Unit (Hrs)…(VC)……0.5 Hrs…..4 Hrs………1 Hrs
Direct Labour Rate per Hour ……………£6……….£6………….£6
Direct Labour Cost per Unit ……………..??...........??...............??

Fixed Monthly Overheads…..(£32,000)
Limiting Factor
Shortage of Direct Labour Hours. (Available 1,400 Hrs)

Calculate number of units of each range to make and sell to maximise profit for that month.

Step 1 Calculate contribution per Unit (SP-VC=Contribution)

…………………………………………..........…….……….Alpha……….Beta………Gamma
.
Selling Price per unit …(£)..……………......………….50…………120………….80
Less Variable costs Material ……………....……….(11)………...(24)………...(16)
Less Variable Cost Labour (Lab Hrs x £6)…….…(..3)…………(24)………...(..6)
.
Contribution per Unit……(£)…………….......…………£36………..£72………….£58

Step 2 Calculate Contribution per Limiting Factor – Direct Labours in this case
.
……………………………………………….…...............…….Alpha……….Beta………Gamma
Direct Labour per Unit (Hrs)…(VC)…….....…………0.5 Hrs……..4 Hrs………1 Hrs
Divide contribution per unit by Hrs per unit..……£72………….£18……..…..£58

Step 3 Rank products by best contribution per Limiting Factor
.
Rank…………………………………………................……….1………..……3…...………….2
.
Step 4 Work out how many hours would be required to produce each product based on sales and production.
.
………………………………………………...........…….Alpha……….Beta………Gamma
Sales and production..(Units)………………….1,000……….200………...500
Direct Labour per Unit (Hrs)…(VC)…………..…0.5 Hrs…..4 Hrs………1 Hrs
Total Hrs Required to produce …………………500 Hrs…..800Hrs…….500Hrs = 1800 Hrs

Step 5 Allocate Limited Resource to products accoutring to step 3 Ranking.

Hours Allocated for production….Rank 1 …....500Hrs
1400 hrs less 500 hrs = 900 Hrs Rank 2………………………………….500Hrs
900 hrs less 500 hrs = 400 Hrs Rank 3…………………400Hrs Remaining Hrs

Step 6 Work out How many units can be produced from remaining Labours Hrs.
………………………………………………….............….Alpha……….Beta………Gamma
Sales and production..(Units)…………....……….1,000…………..………...500
Direct Labour per Unit (Hrs)…(VC)…………..…0.5 Hrs…..4 Hrs…….…1 Hrs
400 hours from rank 3 divide by 4 hrs equals………………100 units production only

Step 7 work out Total Contribution from Total production Possible.
…………………………………………………......….Alpha……….Beta………Gamma
Sales and production..(Units)…………….1,000……….100………....500
Contribution per Unit……(£)……………………£36………..£72………….£58
.
(important Note – Only use Contribution per UNIT)
.
Total Contribution………………………………£3,600……£7,200…..£29,000.= £39,800

Step 8 Workout possible maximum profit.
.
Less Fixed Cost from Total Contribution…………………………………………..£32,000

Profit……………………………………………………………………………….............……£7,800

Merioneth

Thanks

Thanks so much that's really clear