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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Allocation of scarce capacity and make or buy decision where scarce capacity exists
PQR Limited is an engineering company engaged in the manufacture of components and finished products.
The company is highly mechanised and each of the components and finished products requires the use 'of one or more types of machine in its machining department. The following costs and revenues (where appropriate) relate to a single component or unit of the finished product:
| Â | Â | Â |
Components |
Finished |
| Â | Â | Â | Â |
products |
| Â |
A |
B |
C |
D |
| Â |
£ |
£ |
£ |
£ |
|
Selling price |
 |  |
127 |
161 |
|
Direct materials |
8 |
29 |
33 |
38 |
|
Direct wages |
10 |
30 |
20 |
25 |
|
Variable overhead: |
 |  |  |  |
|
Drilling |
6 |
3 |
9 |
12 |
|
Grinding |
8 |
16 |
4 |
12 |
|
Fixed overhead: |
 |  |  |  |
|
Drilling |
12 |
6 |
18 |
24 |
|
Grinding |
10 |
20 |
5 |
15 |
|
Total cost |
54 |
104 |
89 |
126 |
Requirement:
(a) Calculate the number of units of each finished product that PQR Limited should produce in order to maximise its profits, and the profit per week that this should yield.
(b) The production director- has now discovered that he can obtain unlimited quantities of components identical to A and B for £50 and £96 per unit respectively
State whether this information changes the production plan of the company if it wishes to continue to maximise its profits per week. If appropriate, state the revised production plan and the net benefit per week caused by the change to the production plan.
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