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Dear John,
3 Products : A, B, C
Direct materials (at $5/kg) : A per unit : 8kg , B per unit : 5kg , C per unit : 6kgContribution per unit : A- $35 B-$25 C-$48
Contribution per kg of materials : A- $4.375 B- $5 , C- $8Demand (units)(excluding special contract)
A -3000 units , B-5000 units C-2000 unitsThe company must produce 1000 units of product A for a special contract before meeting normal demand. unfortunately there are only 35000kg of material available. What is the optimal production plan?
If can please kindly show the workings. TQ
This is another area which was removed from the F2 syllabus some time ago, and is now not examinable until F5.
If you still which me to explain then let me know and I will.
I am puzzled that you want to know more, since it is not examinable.
However, we rank on the basis of contribution per kg. So C is best, followed by B, followed by A.
We have to make 1000 units of A, so that takes up 1000 x 8 = 8000 kg.
That leaves 27000 kg.
We then make as many C’s as we can, which is 2000 (limited by the demand). That uses another 2000 x 6 = 12000 kg.
There are now 15000 kg left.
We go to the next best – B – and make as many as we can. Although we can sell 5,000, we are only capable of making 15000/5 = 3000. Then we have used up all the material.
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