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Hi John
A company manufactures three products using different amounts of the same grade of labour, which is in short supply.
The following budgeted data relates to the products:
Per unit: P1 P2 P3Selling price 120 140 95
Materials ($2 per kg) (40) (32) (22)
Labour ($10 per hour) (10) (20) (11)
Variable overheads (20) (28) (24)
Fixed overheads (6) (9) (12)
Profit per unit 44 51 26What order should the products be manufactured in to ensure that profit is maximised?
the answer given is p1 p3 p2… i don’t understand why.
please explain. this is the june 2015 no 11 mcqThe products should be ranked in the order of contribution per hour of labour.
I really do suggest that you watch our free lecture on throughput accounting (this example is in fact key factor analysis, which is dealt with at the start of the throughput accounting lecture (because the two techniques are related)).
Also, you can find lectures working through the whole of the June 2015 exam by following the link to “Revision Kit Live” from the main Paper F5 page.
(Our free lectures are a complete course for Paper F5 and cover everything needed to be able to pass the exam well.)
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