ACCA Applied Knowledge · Management Accounting · Budget preparation
A company makes products X and Y. Machine hours are limited to 1,200 hours. X contributes $30 per unit and uses 2 machine hours per unit; Y contributes $36 per unit and uses 3 machine hours per unit. Demand is unlimited for both. Which production plan maximises contribution?
Make 600 units of X only. When machine hours are the limiting factor, products are ranked by contribution per machine hour. X earns $15 per hour against $12 for Y, so all 1,200 hours are used on X, yielding $18,000 contribution.
- AMake 600 units of X onlyCorrect
- BMake 400 units of Y only
- CMake 600 units of X and 400 units of Y
- DMake 300 units of X and 200 units of Y
Explanation
Contribution per machine hour: X = 30/2 = $15; Y = 36/3 = $12. X ranks first, so all 1,200 hours go to X: 600 units, giving $18,000. Y only would give 400 x 36 = $14,400. Choosing Y because of its higher unit contribution ignores the limiting factor.
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