Propose ways that could help the company to solve the problem of special machine time shortage

Hype Ltd produces four types of clothes with the use of a special machine. Each labor hour in the special machine costs £10. For the production of the four products the company has 6,800 special machine labor hours. There will be no shortage of any other factor of production. Costings and break-even quantities for the products are as follows:

Products	A (Jeans)	B (Shirts)	C (Jackets)	D (Coats)
Material cost per unit	£20	£30	£60	£100
Special machine labor hours per unit	0.25	0.5	0.4	0.55
Fixed costs	£40,000	£50,000	£70,000	£120,000
BEP (break-even point) quantity	1,000	1,500	1,400	2,100

For each type of product the management of the firm aims at the following targeted profit levels:

Product	Target Profit
A	£100,000
B	£120,000
C	£150,000
D	£200,000

However, the marketing department has conducted a consumer survey and estimated that the actual demand for the products will be different from that corresponding to the targeted profits. The estimated quantity demanded for each product is given in the table below:

Product	Estimated Quantity Demanded
A	3,200
B	3,600
C	4,300
D	5,300

REQUIRED:

1.       Calculate the volume of activity that the company will have to achieve in order to meet the targeted level of profit for each one of the four products.

This expression can also be described as the targeted profit, and it implies the unit of goods that must be sold in order for the company to attain the level of profit targeted.

This is calculated with the formula: Sales (units) = Fixed Costs + Target Profit/ Contribution margin per unit

For A =

             Estimated demand + targeted profit / contribution margin per unit (targeted profit – variable cost)

           = 3,200 units + £100,000 / (£100,000 - £20.25)

           = £103,200uits / 99,979.75

           = 1.0322 £/unit

For B =

             Estimated demand + targeted profit / contribution margin per unit (targeted profit – variable cost)

           = 3,600 units + £120,000 / (£120,000 - £30.5)

           = £103,200uits / 119969.5

           = 0.860 £/unit

For C=

             Estimated demand + targeted profit / contribution margin per unit (targeted profit – variable cost)

           = 4,300 units + £150,000 / (£150,000 - £60.4)

           = £154,300uits / 149939.6

           = 1.029 £/unit

For D=

             Estimated demand + targeted profit / contribution margin per unit (targeted profit – variable cost)

           = 5,300 units + £200,000 / (£200,000 - £100.55)

           = £205,300uits / 199899.45

           = 1.027 £/unit

2.       Calculate the optimal production each of for the four products by taking into account the available labor hours and the estimates of the marketing department.

This can be described as the level at which the labour hour is capable of meeting the estimated production level

Thus, labour hour = market estimate

OPL for A=

Since 0.25 = 1,000 units, then for 3,200 units, the optimum level is (3,200/1000) x 0.25 = 0.80 labour hours

OPL for B=

Since 0.5 = 1,500 units, then for 3,600 units, the optimum level is (3,600/1,500) x 0.5 = 1.2 labour hours

OPL for C=

Since 0.4 = 1,400 units, then for 4,300 units, the optimum level is (4,300/1,400) x 0.4 = .22 labour hours

OPL for D=

Since 0.55 = 2,100 units, then for 5,300 units, the optimum level is (5,300/2,100) x 0.55 = 1.39 labour hours

3.       Propose ways that could help the company to solve the problem of special machine time shortage (around 300 words).

In order to avoid the issue of labour shortage, it is recommended that the company should constantly evaluate the performance of their available labour in order to measure any change sin output and ensure that such changes are corrected before they become high risk threats. The evaluation approach is more like a preparedness towards any unforeseen circumstances by ensuring that issues related to the output and performance of the company are corrected on time before they become much worst.

Besides the above, the company should watch the market demand as overall changes in the demand curve will effect changes in the performance of the available labour with respect to meeting demands. In the view of that, the company should always ensure that they are enough labour equipped with the right skills and expertise to meet the changes in consumers demand to elect such labour in cases where they seem to be lacking.