560 SECTION A Answer this COMPULSORY question Question 1 (Relevant Costing) Mahogany Timbers Ltd (MTL) manufactures boardroom tables (ALPHA) for industry. In the coming year, the company plans to sell 220,000 ALPHA tables, which is the maximum expected demand for this type of boardroom table globally. The variable cost and selling price data for ALPHA is as follows: Product ALPHA £ Materials per unit (£8.00 per kg) Labour (15 hours per unit) 285 Variable overheads per unit 580 Total variable costs £1,425 Selling price £2,890 Fixed overhead costs are predicted to be £290,000,000 in the coming year. Having built a new plant to increase manufacturing capacity, MTL is planning on introducing new models of boardroom table BETA and DELTA which will serve new markets for integrated computing and socially distanced requirements. These other products (BETA and DELTA) use the same materials but different types of labour to the current ALPHA product range. QUESTION CONTINUES ON NEXT PAGE Data are as follows: BETA Demand units DELTA Demand units 140,000 £ 95.000 £ 544 640 480 600 Materials per unit (£8.00 per kg) Labour (20 hours per unit) Variable overheads per unit Total variable costs Proposed selling price Materials per unit (£8.00 per kg) Labour (25 hours per unit) Variable overheads per unit Total variable costs Proposed selling price 470 £1,494.00 890 £2,130.00 £2,967.00 £3.970.00 Material is expected to be in short supply because of the global logistics crisis and is predicted to be limited to 30,000,000 kg in the coming year. Required: (a) Prepare a production plan for all three products (in units) that makes the best use of the material available. (12 marks) (b) Discuss the implications for producing the products according to profit optimisation. Consider the reaction by customers and competitors to the unavailability of some products from your store. Explain what measures you can take to address the demand that your own production cannot fulfil , given the materials limitation. (8 marks) Total 20 marks
