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Limiting factor

AAMAAL5y ago
Q plc makes two products – Quone and Qutwo – from the same raw material. The selling price and cost details of these products are as shown below: Quone Qutwo $ $ Selling price 20.00 18.00 ––––– ––––– Direct material ($2.00 per kg) 6.00 5.00 Direct labour 4.00 3.00 Variable overhead 2.00 1.50 ––––– ––––– 12.00 9.50 ––––– ––––– Contribution per unit 8.00 8.50 The maximum demand for these products is 500 units per week for Quone, and an unlimited number of units per week for Qutwo. The shadow price of these materials is pick from list, if material were limited to 2,000 kgs per week? List options are: $nil $2.00 per kg $2.66 per kg $3.40 per kg.... The answer is $3.4 per kg ... They did 8.5/2.5kg=3.4$ ...... I didn't understand how did they get 2.5kg???plz explain
John MoffatJohn MoffatTutor5y ago#1
The material is costing $2.00 per kg. The materials used in Qutwo are costing $5.00 per unit. Therefore Qutwo must be using $5/$2 = 2.5 kgs.per unit (Similarly, Quone must be using $6/$2 = 3 kgs per unit.)
AAMAAL5y ago#2
Thanks
John MoffatJohn MoffatTutor5y ago#3
You are welcome :-)
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