CAF-5 · Chapter 17 · Question 3 of 20
(CVP Analysis & Limiting Factor) A company produces two products, X and Y. Product X yields a contribution of Rs. 40 per unit and requires 2 machine hours. Product Y yields a contribution of Rs. 50 per unit and requires 5 machine hours. Fixed costs are Rs. 100,000. Market demand for both products is unlimited, but the factory is restricted to a maximum of 4,000 machine hours. If the company aims to maximize profit, what will be the net financial result?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Net Loss of Rs. 20,000
Explanation
Rank by limiting factor (Machine Hours). X: Rs. 40 / 2 hrs = Rs. 20 per hour. Y: Rs. 50 / 5 hrs = Rs. 10 per hour. Produce X to maximize profit. 4,000 hours / 2 hrs = 2,000 units of X. Total Contribution = 2,000 units * Rs. 40 = Rs. 80,000. Net Profit = Contribution (80,000) - Fixed Costs (100,000) = (Rs. 20,000) Loss.
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