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Practice Question - Limiting Factor Decision Making

The document contains two questions regarding production planning and cost analysis: 1) A company produces two products (A and B) with different sales prices, variable costs, fixed costs, and machine hour requirements. The question asks to calculate the profit maximizing production mix given a machine hour constraint. 2) A company produces two components (A and B) with expected production volumes, variable costs, direct labor hours, and fixed costs provided. External suppliers offer alternative purchase prices. The question asks to determine the optimal make vs buy decision to maximize profit.

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1K views2 pages

Practice Question - Limiting Factor Decision Making

The document contains two questions regarding production planning and cost analysis: 1) A company produces two products (A and B) with different sales prices, variable costs, fixed costs, and machine hour requirements. The question asks to calculate the profit maximizing production mix given a machine hour constraint. 2) A company produces two components (A and B) with expected production volumes, variable costs, direct labor hours, and fixed costs provided. External suppliers offer alternative purchase prices. The question asks to determine the optimal make vs buy decision to maximize profit.

Uploaded by

jawadzaheer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Q1. The Company produces with the followings costs and revenue per unit.

Particulars

Sales Price

Product A

product B

Rs

Rs

20

10

Variable Cost
Fixed Cost

8
4

Sales Demand

6
3

2,000 Units

3,000 Units

There are only 7,000 machine hours available, and product A requires 4 machine
hours per unit and Product B requires 1 machine hour per unit.

Required;
Calculate the profit maximizing production and sales mix.

Q2. The company makes two components , A and B, for which costs in the next year
are expected to be as follows

Particulars

Productions (units)

30,000

20,000

Variable cost per unit:

Rs

Rs

Direct material

Direct labour
Variable Production OH

9
1

Direct labour is paid Rs 12 per hour. There will be only 19,500 hours of direct labour
time available next year and any additional componets must be purchased from an
external supplier.

Total fixed costs per annum are expected to be as follows:


Incurred as a direct consequence of making A

40,000

Incurred as a direct consequence of Making B


Other Fixed costs

50,000
30,000

An external supplier has offered to supply units of A for Rs 12.5 and units of B for Rs
23.

Required;
Determine the units the company should make and buy.

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