A company produces two products, A and B, the production costs of which are shown below:
A B
K K
Direct material cost 10 10
Direct labour material cost 5 9
Variable overhead 5 9
Fixed overhead 5 9
Total production cost 25 37
Fixed overhead is absorbed on the basis of direct labour cost.The products pass through two processes,Y and Z,with associated labour cost of K40,000 per direct labour hour in each.The direct labour associated with the two products during these processes is shown below:
Process Time Taken
Product A Product B
Y 10 mins 39 mins
Z 20 mins 15 mins
Selling prices are set by the market,the current market price for A being K65 and that for B K25. At these prices, the market will absorb a many units of Aand B as the company can produce. The ability of the company to produce A and B is limited by the capacity to process the products in Y and Z.The company operates a two-shiftsystem,giving 16 working hours per day.Process Z is a single-process line, and for technical reasons this line can only be operated for a maximum of 12 hours per day.Process Y is a dual processline,and thus two units can be processed simultaneously, although this douuubles the requirement for labour. Process Y operates for the full 16 working hours each day.
You are required to: Based on the above information,what production plan should the company follow in order to maximize profit?