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 10kg
What 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?
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10y ago#11. 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.
10y ago#22. 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.
10y ago#33. 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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