Ican 2024 Performance Management Question 1

Tani Kamac (TK) makes three products A, B, and C. All the three products must be offered for sale each month in order to be able to provide a complete market service. The products are fragile and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machine and worked on by a single grade of direct labour. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All the products are first moulded on machine type 1 and then finished and sealed on a machine type 2. The machine hours requirements for each of the products are as follows: Product A: Machine type 1 - 1.5 hours per unit, Machine type 2 - 1.0 hours per unit; Product B: Machine type 1 - 4.5 hours per unit, Machine type 2 - 2.5 hours per unit; Product C: Machine type 1 - 3.0 hours per unit, Machine type 2 - 2.0 hours per unit. The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per month respectively. Details of the selling prices, unit costs and monthly demand for the three products are as follows: Product A: Selling price - 910, Component cost - 220, Other direct material cost - 230, Direct labour cost at ₦80 per hour - 60, Overheads - 240, Profit - 160, Maximum monthly demand (units) - 120; Product B: Selling price - 1,740, Component cost - 190, Other direct material cost - 110, Direct labour cost at ₦80 per hour - 480, Overheads - 620, Profit - 340, Maximum monthly demand (units) - 70; Product C: Selling price - 1,400, Component cost - 160, Other direct material cost - 140, Direct labour cost at ₦80 per hour - 360, Overheads - 520, Profit - 220, Maximum monthly demand (units) - 60. Although TK uses marginal costing and contribution analysis as the basis for its decision making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods inventories are valued in the monthly management accounts at full absorption cost.