Question Tag: Production planning

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PM – Nov 2021 – L2 – Q1 – Budgeting and Budgetary Control

Explore material input constraints, determine optimal production, and evaluate outsourcing and penalties for non-fulfillment of orders.

Question

Kikelomo Limited manufactures three products K, T, and F, using different quantities of the same resources. Budget information per unit is provided:

	K	T	F
Market selling price	1,800	2,520	3,000
Direct labour (₦140/hour)	280	560	700
Material A (₦60/kg)	300	240	420
Material B (₦120/kg)	480	720	600
Variable overhead (₦80/hour)	160	320	400
Fixed overhead	240	140	240
Total cost	1,460	1,980	2,360
Profit	340	540	640
Total budgeted sales units	500	800	1,600

The budgeted sales are for the month of June but do not include an order from a major customer to supply 400 units per month of each of the three products at a discount of ₦200 per unit. During June, management anticipates a shortage of material B, with only 17,500 kgs available. Kikelomo Ltd cannot hold inventory of raw materials, work-in-progress, or finished products.

Required:
a. State THREE factors that may cause input materials to be a budget constraint and identify steps to overcome this constraint. (6 Marks)
b. Prepare calculations to show production that will maximise Kikelomo Ltd’s profit for June. (9 Marks)
c. Kikelomo Ltd has realised that the contract with the major customer does not have to be fully met, but a financial penalty may apply. Calculate the lowest value of the financial penalty to ensure the order is met in full. (6 Marks)
d. Assume the material B shortage will continue and management has decided to outsource some production. Advise management on the advantages and disadvantages of outsourcing. (9 Marks)

Answer

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Tags: Budgeting, Contribution analysis, Financial Penalty, Material Constraints, Outsourcing, Production planning, Profit Maximization
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: NOV 2021

PM – Nov 2018 – L2 – SA – Q1 – Decision-Making Techniques

Maximize profit for JJ Company by determining the optimal production plan and advising on Year 2 scenarios for fulfilling demand.

Question

JJ Company specializes in the manufacture and distribution of accessories for cars and motorcycles across central Lagos and the suburbs. The board and management of the company have decided to expand their potential market by capitalizing on the recent demand for pedal cycles caused by congestion and concerns for global warming. They intend to start manufacturing pedal cycles from 2019.

The design team has developed four models A, B, C, and D for the initial launch of the pedal cycle. The manufacturing process involves frame manufacturing and assembly/accessory fitting.

Year 1

At present, there are 40 employees available to undertake frame manufacturing and 20 available for assembly and accessory fitting. Each employee works a 37-hour week, and no overtime is permitted. Employees working on frame manufacturing cost N1,100 per hour, while those working on assembly/accessory fitting cost N1,500 per hour. All employees can be fully utilized elsewhere if not working on this venture.

The anticipated time in hours that each process will take is as follows:

Model	Frame Manufacturing (hours)	Assembly/Accessory Fitting (hours)
A	2.25	1.25
B	2.20	1.80
C	2.20	1.40
D	2.60	3.00

Direct materials are expected to cost N5,500 for Model A, N6,000 for Models B and C, and N10,000 for Model D. There is no limit on the availability of materials.

Variable overheads of N2,700 per pedal cycle are incurred for both Models A and C, and N3,000 per pedal cycle for both Models B and D.

Fixed overheads allocated to the pedal cycle workshop are N666,000 per annum. The organization uses labor hours to base its overhead absorption rates.

Initial market research indicates that demand and selling prices are likely to be as follows:

Model	Number of Pedal Cycles	Selling Price (N)
A	200	14,550
B	75	16,500
C	220	17,000
D	80	24,000

Year 2

In Year 2, two additional options are available:

Lifting the overtime ban and paying overtime at a rate of time and a half. This will necessitate raising the selling price of all units of the specific model being completed outside normal working hours by N2,500 per pedal cycle. The selling price of the other models remains the same as in Year 1.
Buying in the completed pedal cycle necessary to meet demand from another supplier. This would cost N27,000 per pedal cycle, and the selling price of all units of the model would be increased by N5,500. However, the board is concerned this option may reduce demand.

Required:

a. Determine the production plan that would maximize the profit available to JJ Company in Year 1, assuming no overtime is worked. State the profit that would be earned as a result of this plan. (14 Marks)
b. Advise JJ Company of its most profitable course of action in Year 2, assuming all demand is to be satisfied. (8 Marks)
c. Explain in detail how the relationship between the company and the chosen supplier should be controlled if the directors are considering outsourcing key inputs. (8 Marks)

Answer

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Tags: Costing, Labour Hours, Outsourcing, Overtime, Production planning, Profit Maximization
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2018

MI – Nov 2019 – L1 – SA – Q11 – Budgeting

This question asks to calculate the quantity to be produced based on expected sales and opening/closing inventory.

Question

If the expected sales is 360,000 units and the opening inventory is 40,000 units while the closing inventory is anticipated to be one third of sales units, what is the quantity to be produced for a given period?
A. 480,000 units
B. 440,000 units
C. 400,000 units
D. 360,000 units
E. 220,000 units

Answer

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Tags: Budgeting, Inventory Management, MCQ, Production planning
Level: Level 1

Topic: Budgeting
Series: NOV 2019

MI – Mar-Jul 2020 – L1 – SB – Q3 – Decision-Making Techniques

Determine the optimal production plan and prepare the income statement based on the given production constraints and sales data.

Question

ZUBEY LIMITED manufactures 4 homogeneous products A, B, C, and D with the following projections for the coming year:

The market can only absorb a maximum of 250,000 units of whatever mix in a year.

Assume no opening or closing stocks.

Required:

a. Compute the optimal production plan. (9 Marks)

b. Prepare the income statement arising from (a) above. (11 Marks)

Answer

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Tags: Cost Management, Decision Making, Production planning, Profit Optimization
Level: Level 1

Topic: Decision making techniques
Series: MAR/JULY 2020

MA – Mar 2023 – L2 – Q2a – Standard costing and variance analysis

Prepare a production plan to maximize profit using throughput approach with given labor hours and demand.

Question

The statement below relates to the costs and selling price of a unit of three products produced by a company:

Additional information provided:
Labour rate per hour for all the products is GH¢8
Demand for the year in units: A – 4,000; B – 2,500; C – 3,600
Available labour hours: 65,000
Required:
i) Prepare a production plan that will maximize profit using the throughput approach.
(9 marks)
ii) Calculate the Through Put Accounting Ratio for each product assuming that the conversion
cost is based on the annual demand.
(6 marks)

Answer

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Tags: Cost Management, Limiting factors, Production planning, Profit Maximization, Throughput Accounting

Topic: Throughput Accounting
Series: MAR 2023

QT – Nov 2016 – L1 – Q2 – Linear Programming

This question involves formulating and solving a linear programming problem for maximizing profit in belt production.

Question

JinJin Company Limited makes two types of leather belts: Type Superior and Type Standard. Type Superior is of high quality, and Type Standard is of lower quality. The respective profits are GHp 40 and GHp 30 per belt. The production of each Type Superior requires twice as much time as a Type Standard belt, and if all belts were of Type Standard, the company could make 1,000 belts per day. The supply of leather is sufficient for only 800 belts per day (both types combined). Belt Type Superior requires a fancy buckle, and only 400 of these are available per day. There are only 700 buckles a day available for Type Standard.

Required:
a) Formulate this problem as a Linear Programming Model. (4 marks)

b) Set up the initial Simplex Tableau. (4 marks)

c) Solve your Tableau in (b) above. (8 marks)

d) Interpret your final Simplex Tableau. (4 marks)

Answer

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Tags: Linear Programming, Optimization, Production planning, Simplex Method
Level: Level 1

Topic: Linear Programming
Series: NOV 2016

MA – Mar 2024 – L2 – Q5 – Relevant cost and revenue | Decision making techniques

This question determines the optimal units for in-house production versus outsourcing based on machine hour constraints and relevant cost analysis.

Question

Hwerema Technologies produces various components for telecom companies. The demand for these components is increasing. However, Hwerema Technologies’ production facility is restricted to 50,000 machine hours. Therefore, the company is considering whether to import certain components to make up for the shortfall in production to meet market demand. In this respect, the following information has been gathered:

Factory overheads include fixed overheads estimated at GH¢1.50 per machine hour.

Required:
a) Determine the optimal units to be produced in-house and units to be imported. (16 marks)
b) State FOUR (4) qualitative considerations relevant to make-or-buy decisions. (4 marks)

Answer

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Tags: Machine Hours, Make or buy decision, Outsourcing, Production planning, Relevant Costs
Level: Level 2

Topic: Decision making techniques, Relevant Cost and Revenue
Series: MAR 2024

MA – May 2021 – L2 – Q5b – Decision making techniques, Budgetary control

Recommend the quantities Agrow Ltd should produce in-house and purchase externally, along with the total annual cost.

Question

Agrow Ltd is a community company that manufactures and sells car components; Wiper, Driving mirror, and Brake pad. The budgeted information for the next year is expected to be as follows:

	WIPERS	DRIVING MIRROR	BRAKE PAD
Production (units)	50,000	25,000	35,000
GH¢	GH¢	GH¢	GH¢
Selling price per unit	34	30	28
Direct material per unit	9	10	5
Direct labour cost per unit	18	3	12
Variable production overhead	1	2	1

Direct labour is paid at GH¢12 per hour. While other production factors are unlimited, labour is limited to 102,500 hours. Hence, an extra component must be purchased from an external supplier.

Total fixed cost per annum is expected to be as follows:

Cost	GH¢
Incurred as a direct consequence of making any quantity of Wiper	140,000
Incurred as a direct consequence of making any quantity of Driving mirror	255,000
Incurred as a direct consequence of making any quantity of Brake pad	150,000
Other Fixed Cost	60,000
Total Fixed Cost	605,000

An external supplier has offered to supply a unit of the following at their respective prices:

Component	GH¢
Wiper	32
Driving mirror	24
Brake pad	23

Required:

a) Advise which of the products Agrow Ltd should make in-house or outsource. (7 marks)

b) Recommend the quantities that Agrow Ltd should make and the quantities it should buy externally to obtain the required quantities of all the parts and calculate the total annual cost. (10 marks)

c) State THREE (3) factors to consider before setting a selling price of a product. (3 marks)

(Total: 20 marks)

Answer

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Tags: Cost Analysis, Make or buy decision, Production planning
Level: Level 2

Topic: Decision-making techniques
Series: MAY 2021

PM – Nov 2021 – L2 – Q1 – Budgeting and Budgetary Control

Explore material input constraints, determine optimal production, and evaluate outsourcing and penalties for non-fulfillment of orders.

Question

Kikelomo Limited manufactures three products K, T, and F, using different quantities of the same resources. Budget information per unit is provided:

	K	T	F
Market selling price	1,800	2,520	3,000
Direct labour (₦140/hour)	280	560	700
Material A (₦60/kg)	300	240	420
Material B (₦120/kg)	480	720	600
Variable overhead (₦80/hour)	160	320	400
Fixed overhead	240	140	240
Total cost	1,460	1,980	2,360
Profit	340	540	640
Total budgeted sales units	500	800	1,600

Answer

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Tags: Budgeting, Contribution analysis, Financial Penalty, Material Constraints, Outsourcing, Production planning, Profit Maximization
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: NOV 2021

PM – Nov 2018 – L2 – SA – Q1 – Decision-Making Techniques

Maximize profit for JJ Company by determining the optimal production plan and advising on Year 2 scenarios for fulfilling demand.

Question

The design team has developed four models A, B, C, and D for the initial launch of the pedal cycle. The manufacturing process involves frame manufacturing and assembly/accessory fitting.