- 20 Marks
MI – Nov 2022 – L1 – SB – Q2 – Decision-making techniques
Analysis of production capacity for an additional order
Question
Monsur Limited manufactures shirts for sale. The cost of production per unit is as stated below:
| Costs | N |
|---|---|
| Selling price | 1,000 |
| Materials | 300 |
| Labour | 150 |
| Variable overhead | 150 |
The fixed overhead cost is N1,000,000. Production is currently at 80% capacity, which is 4,000 units. The company just received an order for the production of 1,000 units of the shirts for N800 per unit.
Required:
a. Can Monsur produce the additional 1,000 units ordered considering its current capacity? Show your computation.
b. Compare the profit statements of the company
i. Based on current position (4,000 units)
ii. Based on acceptance of the order (1,000 additional units)
iii. Should the order be accepted? State your reason(s).
Find Related Questions by Tags, levels, etc.
- Tags: Capacity Utilization, Production Analysis, Short-Term Decision
- Level: Level 1
- Topic: Decision-making techniques
- Series: NOV 2022
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