The Custom Jewellery Company manufactures selected designs of gold jewellery. Th

Question

The Custom Jewellery Company manufactures selected designs of gold jewellery. The company's business has been expanding during the past few years. Previously, it was able to manufacture sufficient quantities to supply all of its customers, but the company is projecting that it will be unable to fill all of its orders for the coming year. The company prepared the following estimated data for the next year: The following information is also available: Variable overhead is 40 percent of direct labour cost. Fixed overhead is $800,000 per annum and fixed marketing and administrative costs are $600,000 annually. There are no variable marketing and administrative costs. The direct labour rate is $10 per hour and the factory has a capacity of 60.000 hours. The company has no plans to operate a second shift or seek additional plant capacity. Competition will prevent the firm from increasing its prices. Required: Which pieces of jewellery, and how many should the company make to maximize operating income? Lockets Pendants Bracelets Rings

Explanation / Answer

Company will maximize contribution per hour. calculated as follows:

Lockets = 36/1 = 36

Pendants = 56.8/0.8 = 71

Bracelet = 130.8/2.8 = 46.87

Rings = 99.2/2.2 = 45.1

So: produce maximum Pendants = 12,000 using 9,600 Labout hours

then produce Bracelets (second highest contr per hour) = 10,000 using 28000 labour hours

then produce Rings from remaing labour hours which makes (60,000 - 9,600 - 28,000 = 22,400)/2.2

= 10,180 rings

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.