QP (Pty) Ltd is a food processing company that produces pre-prepared meals for sale to the Army Support Base Western Cape (ASB WC) that it supplies to different units for deployment purposes, as well as other food supply companies. The company specialises in three particular pre-prepared meals and has invested significantly in modern manufacturing processes to ensure a high quality product. The company is very aware of the importance of training and retaining high quality staff in all areas of the company. In order to ensure their production employees’ commitment to the company, the employees are guaranteed a weekly salary that is equivalent to their normal working hours paid at their normal hourly rate of R7 per hour. The meals are produced in batches of 100 units. Costs and selling prices per batch are as follows: Meal TR PN BE R/batch R/batch R/batch Selling price 600 500 400 Ingredient K (R5/kg) 150 120 90 Ingredient L (R10/kg) 70 90 40 Ingredient M (R15/kg) 30 75 45 Labour (R7/hour) 21 28 42 Factory costs absorbed 20 80 40 QP (Pty) Ltd is preparing its production plans for the next three months and has estimated the maximum demand from its customers to be as follows: TR 500 batches PN 400 batches BE 350 batches These demand maximums are amended figures because the ASB has just delayed its request for a large order and QP unusually has some spare capacity over the next three months. However, these demand maximums do include a contract for the delivery of 50 batches of each to an important customer. If this minimum contract is not satisfied then QP (Pty) Ltd will have to pay a substantial financial penalty for non-delivery. The production director is concerned at hearing news that two of the ingredients used are expected to be in short supply for the next three months. QP (Pty) Ltd does not hold inventory of these ingredients and although there are no supply problems for ingredient K, the supplies of ingredients L and M are expected to be limited to: Ingredient L 7 000 kilograms Ingredient M 3 000 kilograms The production director has researched the problem and found that ingredient V can be used as a direct substitute for ingredient M. It also costs the same as ingredient M. There is an unlimited supply of ingredient V. Required: Prepare calculations to determine the production mix that will maximise the profit of QP (Pty) Ltd during the next three months.
QP (Pty) Ltd is a food processing company that produces pre-prepared meals for sale to the Army Support Base Western Cape (ASB WC) that it supplies to different units for deployment purposes, as well as other food supply companies. The company specialises in three particular pre-prepared meals and has invested significantly in modern manufacturing processes to ensure a high quality product. The company is very aware of the importance of training and retaining high quality staff in all areas of the company. In order to ensure their production employees’ commitment to the company, the employees are guaranteed a weekly salary that is equivalent to their normal working hours paid at their normal hourly rate of R7 per hour.
The meals are produced in batches of 100 units. Costs and selling prices per batch are as follows:
|
Meal |
TR |
PN |
BE |
|
R/batch |
R/batch |
R/batch |
|
| Selling price |
600 |
500 |
400 |
| Ingredient K (R5/kg) |
150 |
120 |
90 |
| Ingredient L (R10/kg) |
70 |
90 |
40 |
| Ingredient M (R15/kg) |
30 |
75 |
45 |
| Labour (R7/hour) |
21 |
28 |
42 |
|
20 |
80 |
40 |
QP (Pty) Ltd is preparing its production plans for the next three months and has estimated the maximum demand from its customers to be as follows:
TR 500 batches
PN 400 batches
BE 350 batches
These demand maximums are amended figures because the ASB has just delayed its request for a large order and QP unusually has some spare capacity over the next three months. However, these demand maximums do include a contract for the delivery of 50 batches of each to an important customer. If this minimum contract is not satisfied then QP (Pty) Ltd will have to pay a substantial financial penalty for non-delivery.
The production director is concerned at hearing news that two of the ingredients used are expected to be in short supply for the next three months. QP (Pty) Ltd does not hold inventory of these ingredients and although there are no supply problems for ingredient K, the supplies of ingredients L and M are expected to be limited to:
Ingredient L 7 000 kilograms
Ingredient M 3 000 kilograms
The production director has researched the problem and found that ingredient V can be used as a direct substitute for ingredient M. It also costs the same as ingredient M. There is an unlimited supply of ingredient V.
Required:
Prepare calculations to determine the production mix that will maximise the profit of QP (Pty) Ltd during the next three months.
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