hi i am currently going through the kaplan ma2 book newest addition .
i have a problem that i cant work through and would appreciate any help given .
its one page 253 ch 14 decision making
at a production level of 8000 units per month ,which is 80% capacity ,the budget of export ltd company is as follows
—per unit$—8000 units $
an opportunity arises to export 1000 units per month at a price of $4 per unit
should that contract be accepted
a)spare capacity is available
b)increased profitability of 1000 (4000-3000 =1000)
c)if the limiting factor is materials ,budgeted contribution per $ of materials is
$20000 / 4000=$5 per $1
minimum price is therefore
materials/wages(as above)= $260
contribution$60 x 5 =$300
contract price = 560
i do not understand where the figure 20,000 and 4000 come from in part c.
why are they divided
why is contribution 60 x 5?
my solution for part c :
i know that lost contribution by accepting this job should be added to the price of the job
and in my mind it work out as
budget contribution/budgeted material = (4000+12000)/12000=4/3
contribution lost is = 4/3 x (1000 x 1.5) =2000
materials and wages = (3 x 1000) = 3000
hence contract price is 5000
please help i am very confused
Sorry. I do not have access to the question at present.
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