QUESTION 1
Shabani Ltd manufactures three biscuits Lemon, Milky and Butter. The company that supplies the two raw materials that are used in all three products has informed Shabani that their employees are refusing to work over-time. This means that supply of the materials is limited to the following quantities for the next period:
Material D - 1,030 kg
Material E - 1,220 kg
No other source of supply can be found for the next period.
Information relating to the three products manufactured by Shabani Ltd is as follows:
Lemon Milky Butter Quantity of material used per unit manufactured
Material D (kg) 2 1 4
Material E (kg) 5 3 7
Maximum sales demand (units) 120 160 110 Contribution per unit sold K15 K12 K17.50
Owing to the perishable nature of the products, no finished goods inventory is held.
Required:
(a) Recommend a production mix that will maximise the profits of Shabani Ltd for the forthcoming period. (8 marks)
(b) Shabani Ltd has a valued customer to whom they wish to guarantee the supply of 50 units of each product next period. Would there be an impact on the recommended production plan in (a) above if the valued customer’s supply is produced. (4 marks)
(c) Market research has discovered that the price demand relationship for product Milky during the initial launch phase will be as follows:
Price (K) Demand (units)
100 100
80 200
60 300
Production of Milky biscuits would start immediately, and the production director believes that the variable manufacturing cost would be constant at K25 per unit. This would apply to the entire production and continue up to a production volume of 400 units.
Required:
Determine the optimum price at which Milky biscuits should be sold in order to maximise the company profits during the initial launch phase of the product. Include also the total maximum contribution. State clearly any assumptions you make. (8 marks)
QUESTION 2
Danny Musenge is a General trader engaged in selling second hand vehicles and Construction works. Danny normally buys his cars online from Trade Cars for Zed, collects them from the border when they arrive and parks them in his yard for client viewing. On 1 November 2017, Danny had 3 Corollas in the yard. These were valued at K11,400 each. During November 2017, 12 more Corollas were delivered as follows.
Date Car received Purchase cost per car
10 November 4 K11,875
20 November 4 K13,300
25 November 4 K14,250
Corrollas sold during November were as follows.
Date Cars sold Sales price per Car
14 November 5 K19,000
21 November 5 K19,000 28 November 1 K19,000
Required:
(a) Calculate the gross profit from selling the Cars in November 2017, applying the following principles of inventory valuation.
(i) First in first out (FIFO) (5 marks)
(ii) Last in first out (LIFO) (5 marks)
(iii) Weighted average (AVCO) (5 marks)
(b) Danny’s year end is 30 April each year. At 30 April 2017 costs of K415,625 had been incurred on a contract to construct a feeder road under the Road Development Agency. The value of work certified at the end of the period was K366,842. The contract price is K546,250 but it is anticipated that the final costs at 30 September 2017, when the contract is expected to end, will be K599,554.
Calculate the following:
(i) The anticipated future loss on the contract (2 marks)
(ii) The revenue figure for the period to 30 April 2017. (1 mark)
(iii) The cost of sales figure for the period to 30 April 2017. (2 marks)