Question 2A seminar was recently attended by the Managing Director of XYZ Manufacturing CompanyLimited located at Sheffield. The focus of the seminar was "optimising scarce resourcesutility in a manufacturing setting with particular reference to linear programming". On hisreturn to his base, he called for a meeting with the Management to share his experiencefrom the seminar and the impact this will have on the decision by the Board to produce twomajor products in the years ahead.A group of external research experts had previously been commissioned and the followingrepresents information from the research carried out by themThe expected products are "Best" and "Smart" with expected costs statistics as follows:Best££Smart(3kg@£50/kg)Material costs(5kg@£50/kg)250150Labour costsMachinery time30(4 hours @£15/Hr) 60(4 hours @£10/hr) 40(2hours @£15/Hr)(5hours@£10/Hr)Other Processing Time50The applicable pricing policy is based on total cost of production plus 20% mark up on cost.The Company's overhead is expected to be £10,000,000 with normal production of 200,000units of Best and 100,000 units of Smart and overhead absorbed on the basis of 3 to 2respectively.The resources below will be available to the company in the following year.i. Materials 1,800,000kgsii.Machine time 800,000 hoursiii.Other process time 1,400,000 Required:a. What is linear programming? Briefly explain the usefulness of the model.b. Compute the prices that will be adopted by the company for the two productsusing the company policy.c. Advise the company on the output that needs to be produced to maximise itstotal profit, supporting your answer with full financial analysis.d. i. Explain the meaning of "shadow prices" and comment on the usefulness ofit and its limitation.ii. Calculate the shadow prices of the constraints.Assuming the company's position in (c) is maintained for three years with aninvestment cost of £45,000,000 on the day of commencement of manufacturingbusiness, using a cost of capital of 15%.i. Can this venture be justified for the period?ii. What is the breakdown discount factor for this project?

"Since you have asked a question with sub-parts more than three, as per guidelines, the first three…

A seminar was recently attended by the Managing Director of XYZ Manufacturing Company Limited located at Sheffield. The focus of the seminar was "optimising scarce resources utility in a manufacturing setting with particular reference to linear programming". On his return to his base, he called for a meeting with the Management to share his experience from the seminar and the impact this will have on the decision by the Board to produce two major products in the years ahead.

A seminar was recently attended by the Managing Director of XYZ Manufacturing Company Limited located at Sheffield. The focus of the seminar was "optimising scarce resources utility in a manufacturing setting with particular reference to linear programming". On his return to his base, he called for a meeting with the Management to share his experience from the seminar and the impact this will have on the decision by the Board to produce two major products in the years ahead.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 39P: Randy Harris, controller, has been given the charge to implement an advanced cost management system....

See similar textbooks

Similar questions

A seminar was recently attended by the Managing Director of XYZ Manufacturing Company Limited located at Sheffield. The focus of the seminar was “optimising scarce resources utility in a manufacturing setting with particular reference to linear programming”. On his return to his base, he called for a meeting with the Management to share his experience from the seminar and the impact this will have on the decision by the Board to produce two major products in the years ahead. A group of external research experts had previously been commissioned and the following represents information from the research carried out by them The expected products are “Best” and “Smart” with expected costs statistics as follows: Best £ Smart £ Material costs (5kg@£50/kg) 250 (3kg@£50/kg) 150 Labour costs Machinery time (4 hours @£15/Hr) 60 (2hours @£15/Hr) 30 Other Processing Time (4 hours @£10/hr) 40 (5hours@£10/Hr) 50 The applicable pricing…
Joseph Fox, controller of Thorpe Company, has been in charge of a project to install an activity-based cost management system. This new system is designed to support the companys efforts to become more competitive. For the past six weeks, he and the project committee members have been identifying and defining activities, associating workers with activities, and assessing the time and resources consumed by individual activities. Now, he and the project committee are focusing on three additional implementation issues: (1) identifying activity drivers, (2) assessing value content, and (3) identifying cost drivers (root causes). Joseph has assigned a committee member the responsibilities of assessing the value content of five activities, choosing a suitable activity driver for each activity, and identifying the possible root causes of the activities. Following are the five activities with possible activity drivers: The committee member ran a regression analysis for each potential activity driver, using the method of least squares to estimate the variable and fixed cost components. In all five cases, costs were highly correlated with the potential drivers. Thus, all drivers appeared to be good candidates for assigning costs to products. The company plans to reward production managers for reducing product costs. Required: 1. What is the difference between an activity driver and a cost driver? In answering the question, describe the purpose of each type of driver. 2. For each activity, assess the value content and classify each activity as value-added or non-value-added (justify the classification). Identify some possible root causes of each activity, and describe how this knowledge can be used to improve activity performance. For purposes of discussion, assume that the value-added activities are not performed with perfect efficiency. 3. Describe the behavior that each activity driver will encourage, and evaluate the suitability of that behavior for the companys objective of becoming more competitive.
Title This exercise was contributed by Dr. Rick Wilson of Oklahoma State University to illustrate the... Description This exercise was contributed by Dr. Rick Wilson of Oklahoma State University to illustrate the modeling capabilities of Excel Solver. You are working with a large set of temporary workers (collection of interns, retirees, etc.) to create a draft plan to staff a nighttime call center (for the near future). You also have a handful of full-time workers who are your “anchors”—but you have already placed them in the schedule and this has led to your staffing requirements. They (full-time workers) are of no concern to you in the model. These staffing requirements are by day: You need 15, 20, 19, 22, 7, 32, and 35 staff for M, T, W, Th, F, Sat, Sun (respectively). You have between 8 and 10 of the pool who cannot work on the weekend (Saturday or Sunday). For these “Weekday Only” folks, there are 3 shifts possible: They will work 4 of the 5 weekdays, one shift will have…
The Chief Information Officer (CIO) and the Managing Director (MD) of Illustrious Limited recently had the following conversation regarding the development of a new information system for the company: CIO: The way to go about the analysis is to first examine the old system, such as reviewing key documents and observing the workers performing their tasks. Then we can determine which aspects are working well and which should be preserved. MD: We have been through these types of projects before, and what always ends up happening is that we do not get the new system we are promised. Instead we get a modified version of the old system. CIO: I can assure you that will not happen this time. My team just want a thorough understanding of what is working well and what is not. MD: I would feel much more comfortable if we first started with a list of our requirements. We should spend more time in determining what exactly we want the system to do upfront. Then your team can come in and determine…
The Chief Information Officer (CIO) and the Managing Director (MD) of Illustrious Limited recently had the following conversation regarding the development of a new information system for the company: CIO: The way to go about the analysis is to first examine the old system, such as reviewing key documents and observing the workers performing their tasks. Then we can determine which aspects are working well and which should be preserved. MD: We have been through these types of projects before, and what always ends up happening is that we do not get the new system we are promised. Instead, we get a modified version of the old system. CIO: I can assure you that this will not happen this time. My team just wants a thorough understanding of what is working well and what is not. MD: I would feel much more comfortable if we first started with a list of our requirements. We should spend more time determining what exactly we want the system to do upfront. Then your team can come in and…
The Chief Information Officer (CIO) and the Managing Director (MD) of Illustrious Limited recently had the following conversation regarding the development of a new information system for the company: CIO: The way to go about the analysis is to first examine the old system, such as reviewing key documents and observing the workers performing their tasks. Then we can determine which aspects are working well and which should be preserved. MD: We have been through these types of projects before, and what always ends up happening is that we do not get the new system we are promised. Instead we get a modified version of the old system. CIO: I can assure you that will not happen this time. My team just want a thorough understanding of what is working well and what is not. MD: I would feel much more comfortable if we first started with a list of our requirements. We should spend more time in determining what exactly we want the system to do upfront. Then your team can come in and determine…
The Chief Information Officer (CIO) and the Managing Director (MD) of Illustrious Limited recently had the following conversation regarding the development of a new information system for the company: CIO: The way to go about the analysis is to first examine the old system, such as reviewing key documents and observing the workers performing their tasks. Then we can determine which aspects are working well and which should be preserved. MD: We have been through these types of projects before, and what always ends up happening is that we do not get the new system we are promised. Instead we get a modified version of the old system. CIO: I can assure you that will not happen this time. My team just want a thorough understanding of what is working well and what is not. MD: I would feel much more comfortable if we first started with a list of our requirements. We should spend more time in determining what exactly we want the system to do upfront. Then your team can come in and determine…
The Chief Information Officer (CIO) and the Managing Director (MD) of Illustrious Limited recently had the following conversation regarding the development of a new information system for the company: CIO: The way to go about the analysis is to first examine the old system, such as reviewing key documents and observing the workers performing their tasks. Then we can determine which aspects are working well and which should be preserved. MD: We have been through these types of projects before, and what always ends up happening is that we do not get the new system we are promised. Instead, we get a modified version of the old system. CIO: I can assure you that this will not happen this time. My team just wants a thorough understanding of what is working well and what is not. MD: I would feel much more comfortable if we first started with a list of our requirements. We should spend more time determining what exactly we want the system to do upfront. Then your team can come in and…
You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRRs and recommended the highest IRR option, Proposal A. You are concerned and decided to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRS were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal were not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in year 3. Here is the information you have: Proposal IRR Year 0 Year 1 Year 2 Year 3 A 60.0% -100 30 153 88 B 55.0% ? 0 206 95 C 50.0% -100…
You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRs were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): Suppose the appropriate cost of capital for each alternative is 10%. Using this…
You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRS were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): Proposal Year 1 Year 2 с IRR 60.0% 54.3% 53.6% Year 0 - $100 $30 $0 $37 $153 $206…
You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRS were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): - Suppose the appropriate cost of capital for each alternative is 10%. Using this…