question archive Solar Itd is approached to produce a special-order contract for 200 products
Solar Itd is approached to produce a special-order contract for 200 products
Subject:AccountingPrice:2.84 Bought6
Solar Itd is approached to produce a special-order contract for 200 products. Each product requires 0.85kgs of material K. There are 400Kgs of material K in inventory. This material was purchased for another contract 2 years ago and the contract subsequently fell through and was never completed. Material K was purchased for £8.50 per kg but is held in inventory at £7.75 per kg. Material K can be sold for scrap at £3.50 per kg but could also be used as a substitute for material Z which is used within the manufacture of a number of products supplied by Solar Itd. A spray would have to be applied to material K, at a cost of £4.50 but this would mean that the company would not have to purchase Material Z at a cost of £7.00. The relevant cost of the material K is a) £1,445.00 b) £1,317.50 c) £595.00 d) £425.00 v) After having completed a linear programming exercise a company is trying to establish how much extra it can pay for additional quantities of material X. The objective function is to maximise 120H + 80L and the maximum contribution is £29,800. The binding constraints are Material X (2.5H +3.5L = 850) and Labour (5H +3L = 1,200) For each additional kg of material X the company can pay: a) Up to £4.00 above the current price b) Up to £26.00 above the current price c) £4.00 per kg d) £26 per kg
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A)
cost of buying material k of 8.50 is irrelevant because now the material is of no use,.
now it can be sold for 3.50 is an opportunity cost because we can sell it at 3.50 if we do not use it for the contract.
if we use it in place of material z then,
cost of not selling material k = 3.50 + cost of spray = 4.50 = 8.00 but we can buy it from market at 7, then we should prefer to sell material k in market for 3.50.
quantity required = 200 unit * 0.85 kg per unit = 170 kg
cost per kg = 3.50
total cost = 3.50*170 kg = 595.
the answer is c.
B)
equation 1 2.5H+ 3.5L = 850
euaqtion 2 5.0H+ 3.0L = 1200
multiply euation 1 with 2
equation 1 5.0H+ 7.0L = 1700
euaqtion 2 5.0H+ 3.0L = 1200
subtract equation 2 from equation 1
4.00 L = 500
L = 125
Then put value of L in equation 1
2.5H+ 3.5 *125 = 850
2.5H = 850-437.50
H= 175
Total contribution = 120*175+80*125 = 31000
Maximum Contribution = 29800
Excess Contribution = 31000-29800 = 1200
Units of H = 120
Per Unit = 1200/120 = 10
I unit of X need 2.5 unit of H
So Per unit cost 10/2.5 = 4 per unit over & above current price.
