Not enough labour hours

Merioneth
Merioneth Registered Posts: 21 Dedicated contributor ? ? ?
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!

Comments

  • visha
    visha Registered Posts: 218 ? ? ?
    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
    Merioneth Registered Posts: 21 Dedicated contributor ? ? ?
    Thanks

    Thanks so much that's really clear
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