Bida Ltd. is a small scale company which manufactures three products namely; Exe, Wye and Zed. The company has two departments: Assembly and Machinery which require the same level of labour expertise. The following information relates to the operations of Bida Ltd.: In the period commencing 1 March 2005 and ending 28 February 2006, the company budgeted for: Fixed overheads (Sh.) 3,000,000 Capacity – Machinery (hr) 50,000 Assembly department (hr) 75,000 The standard costs per unit of each product are: Exe Wye Zed Selling price 2,000 1,580 2,240 Variable costs: 700 400 800 Direct material 480 320 560 Direct labour – machinery department (Sh.80 per hour) 480 320 560 Assembly department (Sh.60 per hour) 360 390 420 Total variable costs 1,540 1,110 1,780 Information in respect to the maximum demand for each product which Bida Ltd. could alternatively source from an independent supplier, for the same quality, is given below Product Maximum demand (units) Price quoted by external supplier per unit (Sh.) Exe 3,000 1,750 Wye 2,500 1,400 Zed 5,000 2,000 Required: Briefly explain the term “limiting factor.” (2 marks) Identify and compute the limiting factor for Bida Ltd. (4 marks) Determine which product(s) should be sourced from the external supplier and the relevant quantities. (9 marks)
Bida Ltd. is a small scale company which manufactures three products
namely; Exe, Wye and Zed. The company has two departments: Assembly
and Machinery which require the same level of labour expertise. The
following information relates to the operations of Bida Ltd.:
In the period commencing 1 March 2005 and ending 28 February 2006, the
company budgeted for:
Fixed overheads (Sh.)
3,000,000
Capacity – Machinery (hr)
50,000
Assembly department (hr)
75,000
The standard costs per unit of each product are:
Exe
Wye
Zed
Selling price
2,000
1,580
2,240
Variable costs:
700
400
800
Direct material
480
320
560
Direct labour – machinery department (Sh.80 per hour)
480
320
560
Assembly department (Sh.60 per hour)
360
390
420
Total variable costs
1,540
1,110
1,780
Information in respect to the maximum demand for each product which
Bida Ltd. could alternatively source from an independent supplier, for
the same quality, is given below
Product
Maximum demand (units)
Price quoted by external supplier per unit (Sh.)
Exe
3,000
1,750
Wye
2,500
1,400
Zed
5,000
2,000
Required:
Briefly explain the term “limiting factor.” (2 marks)
Identify and compute the limiting factor for Bida Ltd. (4 marks)
Determine which product(s) should be sourced from the external
supplier and the relevant quantities. (9 marks)
