90.2K

Verified Solution

Link Copied!

Decent Limited is a manufacturer of different electrical components. Company is operating in a highly competitive market. All components use same material and passes through from same production process. Since the inception company had made strong relationship with one supplier who fulfill all material requirements of the company. Both products are facing different level of competition. Component 1 was the first product with which company had started his business and since then many competitors have entered into the market. Therefore company is facing tough competition in this market and for last two years growth in sales are almost zero. On the other side second product which is

component 2 is launched just few years back and there are expectation that product will bring large cash flows into the business. Company has recently conducted a market survey that has shown that PED of component 1 is less than 1 and of component 2 is greater than 1. Information relating to two products are as follows

Component 1 Component 2

Expected Demand

(Units) 23000 22000

Selling Price (Rs.) 92 88

Direct material cost

per unit 52 57

Time required of

production process

per unit 1.3199999999999998 0.7699999999999998

Fixed overheads of the company was Rs.203000 Production process is the bottleneck of the company and had total capacity of 37839.999999999993 hours.

Requirements

Calculate throughput return, and throughput accounting ratio of each product. Also interpret values that you have calculated (12)

Calculate mix of production that will maximize profit of the company. Also calculate maximum profit that company can earn (04)

Keeping in view product life cycle stage of each product explain management of the company what will be expected position of revenue and profitability of each product in coming year. (06)

Suggest comprehensive strategy for each product keeping in view all factors mentioned in the question and values that you have calculated.

Answer & Explanation Solved by verified expert

See Answer