Economic Problems
Zebra Ltd (Extra Practice Question)
It has three products all of which require the same production facilities. Financial data on the three products are as follows:
Product X Y Z
£ per unit £ per unit £ per unit
Selling price per unit (£) 190 132 95
Variable Cost per unit (£):
Direct material per unit (£) 40 35 22
Direct Labour per unit (£) 30 15 8
Other variable cost per unit (£) 10 10 5
Share of fixed cost per unit (£) 30 30 30
Monthly demand in units (units) 120 180 200
Machine time per unit (hours) 11 6 4
The same machine is used to produce all three products and hence, fixed cost is not affected. Fixed cost is £14,300 per month for all production.Machine time is limited to 2,320 hours per month. Labour is a variable cost for this project.
Required:
With supported workings, show which combination of products to be produced will achieve the highest profit for the company.