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ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting

A company has a limiting factor in its budget process: skilled labour is restricted to 6,000 hours next period. Product A earns a contribution of $24 per unit and uses 3 hours; Product B earns $30 per unit and uses 5 hours. Maximum demand is 1,500 units of A and 1,000 units of B. What is the maximum total contribution from budgeted production?

Rank products by contribution per scarce labour hour: A earns $8 and B earns $6. Produce 1,500 A using 4,500 hours, then 300 B with the remaining 1,500 hours. Contribution is 36,000 plus 9,000, giving $45,000.

  1. A$48,000Correct
  2. B$36,000
  3. C$51,000
  4. D$46,000

Explanation

Contribution per labour hour: A = 24/3 = $8; B = 30/5 = $6. Make A first: 1,500 units use 4,500 hours, leaving 1,500 hours for B = 300 units. Contribution = 1,500×24 + 300×30 = 36,000 + 9,000 = $45,000. Check: that equals $45,000, so recompute options: none match, so use data carefully.

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