50.1K

Verified Solution

Link Copied!

**KINDLY ANSWER ALL SUB-QUESTIONS, INCLUDE NOMENCLATURE FOR ALL FORMULAE USED. PLEASE DON'T REPOST WHAT IS ALREADY ON CHEGG, ANSWER QUESTION ACCORING TO YOUR KNOWLEDGE. THANKS***

The ABC Company manufactures two products: Product X is manufactured by Division X and Product Y is manufactured by Division Y. Both products incur costs in the ABC Companys production and packaging departments. The following data relate to the month of June:

	Division X	Division Y
Selling price per unit	R200.00	R190
Direct labour: production at R7.50 per hour*	R7.50	R15
Direct labour: packaging at R5 per hour*	R12.50	R10
Other variable costs per unit	R80.00	R45
Contribution	R100.00	R120

* These are the actual hourly wages paid to the departments employees. You may assume

that the production and packaging departments incur no further variable costs.

The total capacity available is 1 000 hours per month for production and 1 500 hours per month for packaging. The demand in June is 500 units of product X and 500 units of product Y. Owing to the capacity restrictions in the production and packaging departments, the company had to perform a linear programming exercise to determine the optimal mix of Product X and Product Y. It has shown that 334 units of Product X and 333 units of Product Y should be manufactured in June and has indicated that the respective shadow prices should be R33.333 per hour for the production department and R26.667 per hour for the packaging department.

Required: Calculate the optimal range of transfer prices for the transfer of the services of the production department and the packaging department respectively, to Divisions X and Y.

Answer & Explanation Solved by verified expert

See Answer