Limiting factor analysis
Triproduct Limited makes and sells three types of electronic security systems for which the following information is available.
Standard cost and selling prices per unit
|
Product |
Day |
Night |
Omni |
|
scan |
scan |
scan |
|
|
(£) |
(£) |
(£) |
|
|
Materials |
70 |
110 |
155 |
|
Manufacturing labour |
40 |
55 |
70 |
|
Installation labour |
24 |
32 |
44 |
|
Variable overheads |
16 |
20 |
28 |
|
Selling price |
250 |
320 |
460 |
Fixed costs for the period are £450 000 and the installation labour, which is highly skilled, is available for 25 000 hours only in a period and is paid £8 per hour.
Both manufacturing and installation labour are variable costs.
The maximum demand for the products is:
|
Day scan |
Night scan |
Omni scan |
|
2000 units |
3000 units |
1800 units |
Requirements:
(a) Calculate the shortfall (if any) in hours of installation labour.
(b) Determine the best production plan, assuming that Triproduct Limited wishes to maximise profit.
(c) Calculate the maximum profit that could be achieved from the plan in part (b) above.
(d) Having carried out an investigation of the availability of installation labour, the firm thinks that by offering £12 per hour, additional installation labour would become available and thus overcome the labour shortage.
Requirement:
Based on the results obtained above, advise the firm whether or not to implement this proposal.
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