We have to use the breakeven point (BEP) formula
BEP = FC/(P/unit-VC/Unit)
t = (FC+Target Profit)/(Price/Unit - VC/Unit)
Also we will need to calculate in advance:
1. VC/unit = GBP35.
2. Price/Unit = GBP68.33
It is necessary to calculate (t) for each product!
The "Order of Production" will give you the product with the "Highest Contribution"; so you can use the following;
1. First calculate the "Contribution per Unit" = Price/unit - Variable Cost/Unit for each product,
2. Next calculate the "Contribution per Hour" = Contribution per Unit/Labor Hours per Unit
3. Now order your contributions per product to determine the "Order of Production",
4. Remember that Marketing has determined an "Estimated Quantity Demand" and 6800 labor hours are available, so for according to your Order Preference, you can calculate your Hours Used and Remaining Hours; i.e.,
Production Production Hours/Unit Hours Used Remaining Hours
1st "A" 3200 0.25 3200x0.25 = 800 6800-800= 6000
2nd "C" ?
3rd "D" ?
4th "B" ?
The problem set deals with issues under accounting: Throughput accounting for decision making.