FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Explain in detail different types of pricing strategies that can be adopted by companies to maximise their profitability.
b. Richard Ltd makes three products, Soya, Milco and Yoghurt. All the three products must be offered for sale each month in order to provide a complete market service. The products are fragile and their quality deteriorates rapidly
shortly after production.
The products are produced on two types of machine and worked on a single grade of direct labour. Fifty direct employees are paid £8.00 per hour for a guaranteed minimum of 160 hours per month.
All the products are first pasteurised on a machine type A and then finished and sealed on a machine type B.
The machine hour requirements for each of the products are as follows:
Soya Milco Yoghurt Hours per unit Hours per unit Hours per unit
Machine Type A 1.5 4.5 3.0 Machine Type B 1.0 2.5 2.0
The capacity of the available machines type A and B are 6,000 hours and 5,000 hours per month respectively. Details of the selling prices, unit costs and monthly demand for the three products are as follows:
Soya
£ per unit 910
220 230 60
Milco
£ per unit 1,740
190 110 480
620 340 700
Yoghurt
£ per unit 1,400
160 140 360
520 220 600
Selling price
Concentrate cost
Other direct material cost
Direct labour cost @ £8.00 per hour
Overheads 240
Profit 160
Maximum monthly demand (units) 1200
Although, Richard Limited uses marginal costing and contribution analysis as the basis for its decision making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods inventories are valued in the monthly management accounts at full absorption cost.
You are required to:
a. Calculate the monthly machine utilisation rate for each product and explain
which machines is the bottleneck /limiting factor. b. Use current system of marginal costing and contribution analysis to
calculate the profit maximising monthly output of the three products.
c. Explain why throughput accounting might provide more relevant information in Richard’s circumstances.
d. Use a throughput approach to calculate the throughput –maximising monthly output of the three products
e. Explain the throughput accounting approach to optimising the level of inventory and its valuation. Contrast this approach to the current system
employed by Richard.
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- Richard Ltd makes three products, Soya, Milco and Yoghurt. All the three products must be offered for sale each month in order to provide a complete market service. The products are fragile and their quality deteriorates rapidly shortly after production. The products are produced on two types of machine and worked on a single grade of direct labour. Fifty direct employees are paid £8.00 per hour for a guaranteed minimum of 160 hours per month. All the products are first pasteurised on a machine type A and then finished and sealed on a machine type B. The machine hour requirements for each of the products are as follows: Soya Milco Yoghurt Hours per unit Hours per unit Hours per unit 4.5 1.5 1.0 2.5 Machine Type A Machine Type B The capacity of the available machines type A and B are 6,000 hours and 5,000 hours per month respectively. Details of the selling prices, unit costs and monthly demand for the three products are as follows: Yoghurt £ per unit 910 1,400 220 160 230 140 60 360…arrow_forwardCordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows: Sales price Variable costs per unit Fixed costs per unit Required number of labor hours Product A Product B Product C Cordova currently is limited to 50,000 labor hours per month. Required: Assuming an infinite demand for each of Cordova's products, determine contribution margin per direct labor hour. (Round your answers to 2 decimal places.) Contribution Margin Product B Ⓒ Product C O Product A Product A Product B Product C $46.00 $56.00 $86.00 22.00 12.25 38.00 8.00 8.00 2.50 4.00 $ $ $ 8.00 1.50 14.67 CM per DL hour 13.12 CM per DL hour 15.25 CM per DL hour Which product would be Cordova's first choice to produce?arrow_forwardoncorde Ltd has been asked to quote a price for an order of 8 units of Product Delta. Making this product will require skilled labour, which is currently in hort supply and is paid £15 an hour. If the order is accepted, all necessary labour will have to be transferred from existing work. As a result, other orders will be lost. It is estimated that for each hour transferred to this contract £45 will be lost (calculated as lost sales revenue £75, less materials £15 and labour 15). The production manager believes that, owing to a learning process, the time taken to make each unit will reduce, from 20 hours to make the first one, by one hour a unit made. (That is 20 hours to make the first one, 19 hours to make the second, 18 hours to make the third one and so on.) What is the total relevant cost of skilled labour for the purposes of the order? The relevant cost for skilled labour will be will be £. ... Time Remaining: 00:43:50 Nextarrow_forward
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