ICAEW BIP · Chapter 11 · Question 9 of 10
A company makes three products. Labour is limited to 9,000 hours in the coming period. Product A: contribution £36 per unit, 3 labour hours per unit, maximum demand 1,200 units Product B: contribution £30 per unit, 2 labour hours per unit, maximum demand 2,000 units Product C: contribution £44 per unit, 4 labour hours per unit, maximum demand 1,500 units What is the maximum total contribution the company can earn?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) £118,600
Explanation
Contribution per labour hour: A £12; B £15; C £11. Ranking is B, A, C. Production plan: B 2,000 units; A 1,200 units; C 350 units (B uses 4,000 hours, A uses 3,600 hours, leaving 1,400 hours for 350 units of C). Total contribution = £60,000 + £43,200 + £15,400 = £118,600. Ranking by contribution per unit gives only £102,000 because it ignores the scarce resource.
More Cost-volume-profit analysis and limiting factors MCQs
- Q1A company's fixed costs are £288,000 a year and the contribution per unit of its only product is £24. What is the breakeven point in units?
- Q2A product sells for £40 and has a variable cost of £26 per unit. Fixed costs are £189,000. What is the breakeven revenue?
- Q3Budgeted sales are 15,000 units and the breakeven point is 12,000 units. What is the margin of safety as a percentage of budgeted sales?
- Q4A company's fixed costs are £288,000 and its contribution per unit is £24. It wants to make a profit of £96,000. How many units must it…
- Q5A company sells products X and Y in the fixed ratio 3:2 by units. Product X earns a contribution of £10 per unit and product Y earns £15…