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1 A company currently makes two products X & Y
Both products us ematerial Z which is in limited supply and currnt production levels are using the entire weekly supply
product X uses 5 kg of Z per unit & Y uses 5kg of Z per unit
Material Z is costing currently $3 per kg & the shadow price has been calculated as $3.70 per kg
The supplier of material Z is prepared to increase the weekly supply by 10kgWhat is the most per kg that the company should be prepared to pay for the extra material?
2 A company needs 2000kg for a contract it has been asked to quote for.They currently have 1500kg in inventory, & the material has no other use .The inventory originally cost $8 per kg, the current cost is $10 per kg and the material could be sold for $9 per kg.
What is the relevant cost for the material required for the contract?
3 The selling price of a product has been set at $6oo per unit and at that price the company expects to sell 5000units per month.Required mark up is 20% & the expected production cost is $520 per unit
What is the target cost gap?
please help me with these questions
I’ve been running out of time1. The shadow price is (by definition) the most extra we would be prepared to pay for one extra unit of a limited resource (above its ‘normal’ price).
Therefore the most per kg is $3 + $3.70 = $6.70.2. The 1500 kg in inventory is valued at the opportunity cost of $9 per kg.
The extra 500 kg has to be purchased and is therefore at $10 per kg.3. The target cost is 100/120 x $600 = $500 per unit.
The expected cost is $520 per unit.
Therefore the cost gap = 520 – 500 = $20.(Full explanations of all of the above are in our free lectures.
Also, the mock exam has been re-uploaded and now there are working provided for all of the questions 🙂 )
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