CIMA BA2 · Chapter 11 · Question 8 of 12
Machine hours are in short supply, with only 10,000 machine hours available. Details of three products are: Product A: contribution $30 per unit, 2 machine hours per unit, maximum demand 2,000 units Product B: contribution $42 per unit, 4 machine hours per unit, maximum demand 1,500 units Product C: contribution $25 per unit, 1.25 machine hours per unit, maximum demand 4,000 units What is the maximum total contribution achievable?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $170,500
Explanation
Rank by contribution per machine hour: C $25 / 1.25 = $20.00; A $30 / 2 = $15.00; B $42 / 4 = $10.50. Make C first: 4,000 units x 1.25 hours = 5,000 hours, contribution $100,000. Then A: 2,000 units x 2 hours = 4,000 hours, contribution $60,000. The remaining 1,000 hours make 1,000 / 4 = 250 units of B, contribution $10,500. Maximum contribution = $100,000 + $60,000 + $10,500 = $170,500.
More Relevant costs and limiting factor decisions MCQs
- Q10A product line earns a contribution of $40,000 a year and is charged $55,000 of apportioned fixed overheads, of which $12,000 would be…
- Q11Which of the following is a COMMITTED cost, and therefore not relevant to a new decision?
- Q12A company with spare capacity is offered a one-off order for 600 units at $22 each. Variable cost is $19 per unit, and a special tool…
- Q1In short-term decision making, which costs are RELEVANT?
- Q2A company spent $15,000 last month on a market research survey for a possible new product. It is now deciding whether to launch the…