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Hi Sir, I have been following your noted but on BPP question am not able to understand this ranking type of question. Would you please help me ? Appreciate it ur help.
Question :
contribution per unit for each product – P4 : 70 and P6 – 100
new contribution per unit for P4 is $85 and for P6 it is $95.How to calculate the below answer :
The correct answer is: The contribution per limiting factor of P4 and P6 is $113.33 and $190
respectively, therefore P6 should be produced first.
The most profitable course of action can be determined by ranking the products and
components according to contribution per unit of the limiting factor. Direct material M1
is the limiting factor in this case, therefore the highest rank will be given to the
product/component with the greatest contribution per m2 of this material.Contribution/unit : P4: 85 P6: 95
m2 of M1/unit P4: 0.75 P6: 0.5
Contribution/m2 P4: $113.33 P6: $190I do not think that you have typed out the whole question. Presumably the question makes it clear that the limiting factor is the amount of materials available.
Using normal key factor analysis, we calculate the contribution per unit of the limited resources and rank the products on that basis.
P4 gives a contribution of $85 per unit and uses 0.75 m2 of material, and therefore the contribution per m2 of material is 85/0.75 = $113.33.
Similarly for P6 the contribution per m2 of material is 95/0.5 = $190.I do explain all of this in my free lectures working through Chapter 5 of our lectures notes. (I trust that you are not using the notes without watching the lectures, because that would be a complete waste of time 🙂 )
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