QUESTION 4

Nano Ltd. manufactures three different types of electric kits for push bike: X, Y and Z. It was expected that the production and demand for the next year on these products as follows:

        Product X Product Y Product Z

Units     1800            2700             3600

Additional details about the products are also as follows:

Nano Ltd. pays labour £9.6 an hour and expects its fixed overheads to be £576,000.  

Required:

a) Calculate the production plan that will maximise profit for Nano Ltd. for next year given that Nano Ltd. has only managed to contract 108,000 labour hours for next year.

b) Calculate Nano Ltd.’s profit based on the production plan in a).

c) It was found that Nano Ltd. has already committed to a contract legally obligating it to supply 2520 units of Product Y. Recalculate the production plan that will maximise profit according to this newly factor.

d) Discuss the non-financial factors that should be considered by Nano Ltd. before adopting any of the suggested production plan.

e) Discuss the benefits of using a marginal costing system in comparison to absorption costing system when making operational decisions.