CAF-5 · Chapter 18 · Question 2 of 20
(CVP Analysis & Multi-Product Limiting Factor) Gamma Ltd produces two products, G1 and G2. G1 has a selling price of Rs. 150, variable cost of Rs. 90, and requires 3 machine hours. G2 has a selling price of Rs. 200, variable cost of Rs. 120, and requires 5 machine hours. Total fixed costs are Rs. 300,000. The maximum market demand is 8,000 units for G1 and 6,000 units for G2. If maximum machine hours available are 39,000, what is the maximum net profit Gamma Ltd can achieve?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 420,000
Explanation
Rank products by CM per limiting factor. G1 CM = 60; CM/hr = 60/3 = Rs. 20/hr. G2 CM = 80; CM/hr = 80/5 = Rs. 16/hr. Priority: G1 first. G1 demand = 8,000 units * 3 hrs = 24,000 hrs. Remaining hours = 39,000 - 24,000 = 15,000 hrs. G2 production = 15,000 / 5 = 3,000 units. Total CM = (8,000 * 60) + (3,000 * 80) = 480k + 240k = Rs. 720,000. Net Profit = 720k - Fixed Costs (300k) = Rs. 420,000.
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