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Hi,
Why from the answer suggested they total up up the profit per unit and fixed overheads, then divide it by material to get the contribution per KG for the ranking?
1. I don’t understand the reasoning we add up profit per unit and fixed overheads to get the contribution per unit, I thought cont per unit are derived from selling price deducted by variable cost.
2. Why do we need to divide by materials to get the ranking, contribution per unit not suffice?
Kindly advice on above. Thanks!
Have you not watched our lecture on limiting factor analysis?
The contrition is either SP – VC or Profit and add back FC – it’s the same figure if you look at it
Material X it tells you is a scarce resource therefore you have to calculate cont, then cont per how much it uses of the scarce resource and then rank etc…
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