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F Co makes and sells two products, A and B, each of which passes through the same automated
production operations. The following estimated information is available for period 1.
Product unit data
A B
Direct material cost ($) 2 40
Variable production overhead cost ($) 28 4Original estimates of production/sales of products A and B are 120,000 units and 45,000 units
respectively. The selling prices per unit for A and B are $60 and $70 respectively.Maximum demand for each product is 20% above the estimated sales levels.
Total fixed production overhead cost is $1,470,000. This is absorbed by products A and B at an average
rate per hour based on the estimated production levels.
One of the production operations has a maximum capacity of 3,075 hours which has been identified as a
bottleneck, limiting the overall estimated production/sales of products A and B. The bottleneck hours
required per product unit for products A and B are 0.02 and 0.015 respectively.b) qustion : If F Co chooses to prioritise Product B, calculate the value (in $) of the maximum net profit.
b) solution :
Determine profit-maximising product mix
Hours Hours Units of
Product Demand required available production
B 45,000 * 1.2 = 54,000 (* 0.015) =810 810 (* 0.015) 54,000
A 120,000 * 1.2 = 144,000 (* 0.02) =2,880 2,265 (* 0.02) 113,250
3,690 3,075
My qustion is how did they calculate the demand this way (45,000 * 1.2) , and how did he get this (1.2) from the above data ??????
please and thanks alot for helping me …The question says that the original estimate of demand for B was 45,000. It also says that the maximum demand is 20% higher.
45,000 x 1.2 is another way of getting 45,000 + (20% x 45,000).
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