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Morning sir,
1. Do I need to include the buy in from sub-contractors units into optimal production plan?
because 88,000kg is only suffcient to produce for Hep 14,000 units and Hay 10,909 units. Is that mean I need to mentioned in the optimal production plan: buy the balance 5091 units of Hay from the sub-contractor?
2. How about when calculate the total profit earned? do I need to include the profit generated from the 5091 units?Question is as followed:
Allt Ltd manufactures luxury clothes in two styles: “Hep” and “Hay” using the same material for each. Annual demand for Hep is 14,000 units while demand for Hay is 16,000 units. Total fixed costs are $800,000. The following information about each product has also been supplied:
Hep HaySales Revenue $75 $90
Variable production costs $25 $35
Raw material required 2kg 5.5kgSupply of material will be restricted to 88,000 kg during the year. As a result, the company will need to outsource some production. A sub contractor has quoted prices of $35 for Hep and $45 for Hay to supply the product.
Required:
Calculate the optimal production mix for the company and establish what the total profit to be earned is from this production plan.Thankss you so much
Yes – you need to state how many they will produce themselves and also how many they will purchase externally.
And yes – when calculating the total profit you need to include all units – both those produced internally and those purchased externally.Ok so that means the meaning of OPTIMAL PRODUCTION MIX is not limited to only state production units? should also state purchase externally units? Am I correct?
because originally I thought the meaning of production mix=different type of products that are produced by the company itself.Thanksss
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