Help with solution please

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Help with solution please

Postby KitCat » Tue Sep 11, 2012 6:24 pm

I have the following scenario:

A company produces 3 products, A, B & C. We are told that labour is in short supply and are given the following details for each product.

Selling Price
Fixed overheads

We are told that the company has 5 employees who work 35 hrs per week and it is a 50wk year and labour is paid $5 per hr.

We are asked for the optimal production plan for the year, if no overtime is worked.

As we are talking limiting factors do I then rank the products on contribution, ie Selling price less materials & labour. and if labour is the limiting factor then the number of hours for the optimal plan for the year would be 5 x 35 x 50 = 8,750 hrs.

That being the case, we are then told that we can recruit extra staff at $7 per hr and we need to say whether or not we should recruit 2 extra members of staff for the forthcoming week and the impact on profit it would have.

Now this is the bit I am not sure of, as my optimal plan was for the year and they want to know whether to recruit 2 extra staff for a week. I know it relates to shadow prices but I can't seem to get my head into gear.

Can anyone help?
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