Blasius Ltd is a leading manufacturer of furniture in Ghana. The company manufactures these three garden furniture products – chair, bench and table. The budgeted unit cost and resource requirements of each of these items are detailed below:

These volumes are believed to equal the market demand for these products.
Fixed overhead costs are attributed to the three products on the basis of direct labour hours.
The cost of the timber is GH¢2.00 per square metre.

The products are made from a specialized timber. A memo from the purchasing manager advises you that because of a problem with the supplier, this specialized timber is limited in supply to 20,000 square metres per annum.
The sales director has already accepted an order for 500 chairs, 100 benches and 150 tables which if not supplied would incur a financial penalty of GH¢2,000. These quantities are NOT included in the market demand estimates above.

The selling prices of the three products are:
Chair      GH¢20.00
Bench     GH¢50.00
Table      GH¢40.00

Required:
Determine the optimum production plan and state the total contribution that this would yield. (10 marks)

Explain how a management accountant can use make or buy analysis and the limiting factor principles to achieve optimal solutions to an internal management problem.  (4 marks)

KYC Ltd makes three products Hand Chew (HC), Yogurt Swallow (YS) and Canned Lick (CL). All three products are sold as a package and so are offered for sale each month in order to be able to provide a complete market service. The products are fragile and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machine and worked on by a single grade of direct labour. Five direct employees are paid GH¢8 per hour for a guaranteed minimum of 160 hours each per month. All of the products are first moulded on machine type 1 and then finished and sealed on machine type 2. The machine hour requirements for each of the products are as follows:

The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per month respectively. Details of the selling prices, unit costs and monthly demand for the three products are as follows:

Although KYC Ltd 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.
Required:
i) Calculate the machine utilisation rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 marks)

ii) Using the current system of marginal costing and contribution analysis, calculate the profit maximising monthly output of the three products. (5 marks)

a) Explain the term shadow price.                                                                                                                                     (2 marks)

b) Unity Company Ltd is preparing for next seasons operations. The company has provided the following information relating to its three products.

The company can only make available a total of 18,560 hours in the short run.
Required:
i) Provide the optimal production plan for Unity Ltd for the ensuing period.                                                                 (5 marks)

ii) What is the total incremental benefit of producing DA instead of GE, assuming available resources can only meet demand of DA?                                                                                                                                                                                     (3 marks)

iii) Indicate the shadow price of the production plan and state the basic assumption under which this price will apply.  (2 marks)