KP makes 2 products, the K and the P.
K P
$ $
Selling price 160 98
Mat C 20 0
Mat D 20 20
Labour 60 40
Fixed costs per unit 15 10
Labour is in short supply and KP have only 21,000 hours available per month. Labour is paid $20 per hour.
What is the maximum contribution they can earn in the month?
The correct answer is: $420,000
K P
$ $
Selling price 160 98
Mat C 20 0
Mat D 20 20
Labour 60 40
Contribution 60 38
Labour hours 3 2
Contribution per hour 20 19
Rank 1 2
Optimal production plan:
We are not told that there is a maximum demand for either product, therefore assume the 21,000 hours are used to manufacture Ks @$20 per hour = $420,000
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Fill in the blanks.
Ideally, a transfer price should be set that enables the individual divisions to maximise their profits at a level of output that maximises ……………………. .
The transfer price which achieves this is unlikely to be a ……………….. transfer price or a ……………. transfer price.
If optimum decisions are to be taken, transfer prices should reflect …………………. .
There are two profit centres, A and B. Profit centre A transfers a product to profit centre B, but could also sell the product in an external market at a price of $30. The marginal cost of making the product in profit centre A is $8 per unit and the full cost is $14 per unit. There would be a variable cost of $1 per unit for sales and distribution to customers in the external market, but no such costs for internal transfers.
To avoid disputes between the profit centre managers, what should be the transfer price for the product?
$ _______
What objectives might the following not for profit organisations have?
(a) An army (d) A political party
(b) A local council (e) A college
(c) A charity
One of the objectives of a local government body could be 'to provide adequate street lighting throughout the area'.
(a) How could the 'adequacy' of street lighting be measured?
(b) Assume that other objectives are to improve road safety in the area and to reduce crime. How much does 'adequate' street lighting contribute to each of these aims?
(c) What is an excessive amount of money to pay for adequately lit streets, improved road safety and reduced crime? How much is too little?
What general objectives of non profit seeking organisations are being described in each of the following?
(a) Maximising what is offered
(b) Satisfying the wants of staff and volunteers
(c) Equivalent to profit maximisation
(d) Matching capacity available
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