The management of a business is concerned about its inability to obtain enough

The management of a business is concerned about its inability to obtain enough fully trained labour to enable it to meet its present budget
projection.

Information concerning the three services offered by the business is as follows:

Service Alpha Beta Gamma Total

A??L000 A??L000 A??L000 A??L000

Variable cost

Materials 6 4 5 15

Labour 9 6 12 27

Expenses 3 2 2 7

Allocated fixed cost 6 15 12 33

Total cost 24 27 31 82

Profit 15 2 2 19

Sales revenue 39 29 33 101

The amount of labour likely to be available amounts to A??L20000. All of the variable labour is paid at the same hourly rate. You have been asked to
prepare a statement of plans ensuring that at least 50 per cent of the budgeted sales revenues are achieved for each service. The balance of labour is used to
produce the greatest profit.

Required:

a) Prepare the statement with explanations showing the greatest profit available from the limited amount of skilled labour
available within the constraint stated. Hint: Remember that all labour is paid at the same rate.

b) What steps could the business take in an attempt to improve profitability in the light of the labour shortage?

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