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Limiting factors

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Limiting factors

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 19, 2015 at 9:29 pm #277672
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Mr Moffat,

    I did the following question which was fine until the end where I have a doubt for which I would like to ask you question. I will be writing the whole question, apologies in advance if it will be a lot of reading.

    A manufactures and sells three products X-Y-Z for which budgeted sale demand, unit selling price and unit variable costs are are follows:

    Product X Y Z

    Budget sale demand 550 500 400

    Unit sale price 16 18 14
    Variable cost
    Material 8 6 2
    Labour 4 6 9

    Contribution 4 6 3

    The organization has existing inventory of 250 units of X and 200 units of Z which is quite willing to use up to meet the sale demand. All three products use the same direct materials and the same type of direct labour. In the next year the available supply of materials will be restricted to $4800 (at cost) and the available supply of labour $ 6600 (at cost)

    Determine which product mix and sale mix would maximise the organization profit in the next year.

    Solution:
    Define the which is the scars resource

    Product X Y Z
    Sale 550 500 400
    Inventory 250 – 200
    Production 300 500 200

    Product Qty to produce Material Labour

    X 300 2400 1200
    Y 500 3000 3000
    Z 200 400 1800

    Material supplied 4800
    Labour supplied 6600

    Shortfall (1000) 600

    Material is the limiting factor.

    Rank the product in order of contribution earns of direct material

    Product X Y Z

    Contribution 4 6 3
    material 8 6 2
    0,5 1 1,5

    Profit maximizing budget

    Product Unit Material/Cost Contribution T.C
    z 400 2 =800 1,5 1200
    Y 500 6 =3000 1 3000
    x 425 8=3400 0,5 1700

    Why have total units been multiplied by contribution earn of direct material and not by the contribution per unit (4-6-3)?

    Thanks in advance

    Gabriella

    October 20, 2015 at 7:12 am #277733
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You can do either – it will give the same answer.

    If you do it on contributions per unit you get:

    Z 400 x 3 = 1200
    Y 500 x 6 = 3000
    X 425 x 4 = 1700

    October 20, 2015 at 9:18 am #277775
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Thanks and Regards

    Gabriella

    October 20, 2015 at 11:44 am #277796
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

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    Posts
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