Symbols Ltd manufactures three products, Alpha, Beta and Gamma, the standard costs of which are…

Symbols Ltd manufactures three products, Alpha, Beta and Gamma, the standard costs of which are as follows:

The company's fixed overheads for the forthcoming year commencing January 1977 are expected to amount to £100,000. The marketing director has estimated that demand for the forthcoming year will be:

but the production director has pointed out that machine capacity is currently 88,000 hours per annum, although this will increase to 120,000 hours per annum when the new plan, already on order, is delivered, but this will not be during the year for which the budget is being prepared. However, the production director, anticipating the problem, has located a general engineering firm who are equipped to undertake work of appropriate quality and have quoted the following prices for production of the company's products on a sub-contracting basis:

You are required to:

(a) advise the managing director how the services of the sub-contractor should be used to enable Symbols Ltd to meet the expected demand for its products in the most profitable manner, showing full details of the calculations upon which your advice is based;

(b) prepare a statement showing the profit to be expected if your advice is followed; and

(c) briefly explain the reasoning you have applied in making your recommendation. * Machinists are paid £1 .50 per hour. t Assemblers are paid £1.00 per hour