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Practice Question 2 continued Zagatee (Pty) Ltd produces two products, the Gaddo and the Giddo, Budgeted data relating to the products on unit basis for December 2020 are as follows: Gaddo Giddo, (M) (M) 150 100 • Materials 80 30 • Salesmen's commission 30 20 • Each unit of product incurs costs of machining and assembly. The total capacity available in December is budgeted to be 700 hours of machining and 1000 hours of assembly, the cost of this capacity being fixed at M7000 and M10 000 respectively for the month, whatever the level of usage made of it. The number of hours required in each of these departments to complete one unit of output is as follows; Selling price
● Machining Assembly Gaddo 1.0 2.5 Giddo. 2.0 2.0 • Under the terms of special controls recently introduced by the government in accordance with SADC requirements, selling prices are fixed and the maximum permitted output of either product in December is 400 units (i.e. Zagatee (Pty) Ltd may produce a maximum of 800 units of product). At the current controlled selling prices, the demand for the products exceeds this considerably.
• Required: a) To calculate Zagatee. (Pty) Ltd's optimal production plan for December, and the profit earned; (10 marks) b) To calculate the value to Zagates. (Pty) Ltd of an independent marginal increase in the available capacity for each of machining and assembly; assuming that the capacity of the other department is not altered and the output maxima continue to apply: c) (10 marks) state the principal assumptions underlying your calculations in (a) above, and to assess their general significance. (5) (Total 25 marks)