Question

Factory X produces a single product which is made from 10 kg of Material A as well as 5 kg of Material B. These quantities allow for waste

The purchase prices of these materials are

Material A £0.50 per kg of annual quantities up to 80,000 kg with a discount of 5% for annual quantities over 80,000 kg and 10% over 100,000 kg. The discount is applied to the whole order.

Material B £0.20 per kg of annual quantities up to 50,000 kg with a discount of 10% if over 50,000 kg as well as 15% over 100,000 kg. The discount is applied to the whole order.

The policy is to order only adequate material to meet production requirements. The normal annual capacity of the factory is 12,000 and this requires 50,000 direct labor hours at a cost of £0.60