ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
A company has two products with the following data per unit. Product A: contribution $24, machine time 4 hours. Product B: contribution $30, machine time 6 hours. Maximum demand is 1,000 units of A and 800 units of B. Machine hours are limited to 7,000 hours. To maximise contribution, how many units of B should be produced?
Produce 500 units of B. Product A earns $6 per machine hour against $5 for B, so A is made to its full demand of 1,000 units using 4,000 hours. The remaining 3,000 hours make 500 units of B at 6 hours each.
- A200 unitsCorrect
- B500 units
- C800 units
- D1,000 units
Explanation
Contribution per machine hour: A = 24/4 = $6; B = 30/6 = $5. A ranks first: 1,000 units use 4,000 hours. Remaining 3,000 hours make 3,000/6 = 500 units of B, which is below demand of 800. So B = 500 units.
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