A manufacturer has three products, A, B, and C. Currently sales, cost
and selling price details and processing time requirements are as follows:
Product Product Product
A B C
Annual sales (units) 6000 6000 750
Selling price ( ) $20.00 $31.00 $39.00
Unit cost ( ) 18.00 24.00 30.00
Processing time
required:
Per unit (hours) 1 1 2
The firm is working at full capacity (13 500) processing hours per year). Fixed manufacturing overheads are absorbed into unit costs by a charge o f 200% of variable cost. This procedure fully absorbs the fixed manufacturing overhead. Assuming that:
(i) processing time can be switched from one product line to another,
(ii) the demand at current selling prices is :
Product Product Product
A B C
11000 8000 2000
and
(iii) the selling prices are not to be altered,
(b) A review of the selling prices is in progress and it has been estimated that, for each product, an increase in the selling price would result in a fall in demand at the rate of 2000 units for an increase of 1 and similarly, that a decrease of 1 would increase demand by 2000 units. Specifically the following price/demand relationships would apply:
Product A Product B Product C
Selling Estimated Selling Estimated Selling Estimated
Price demand price demand price demand
( ) ( ) ( )
24.50 2 000 34.00 2 000 39.00 2 000
23.50 4 000 33.00 4 000 38.00 4 000
22.50 6 000 32.00 6 000 37.00 6 000
21.50 8 000 31.00 8 000 36.00 8 000
20.50 10 000 30.00 10 000 35.00 10 000
19.50 12 000 29.00 12 000 34.00 12 000
18.50 14 000 28.00 14 000 33.00 14 000
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