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ACCA Applied Skills · Performance Management · Limiting factors

A company makes products X and Y. Machine hours are the only scarce resource. X has a contribution of $24 per unit and uses 3 machine hours; Y has a contribution of $30 per unit and uses 5 machine hours. To maximise profit, how should the products be ranked?

X should be ranked first because it earns $8 contribution per machine hour against $6 for Y. When one resource is scarce, products are ranked by contribution per unit of that resource, not by contribution per unit sold.

  1. AY first, because it has the higher contribution per unit
  2. BX first, because it has the higher contribution per machine hourCorrect
  3. CX first, because it uses fewer machine hours in total
  4. DY first, because it uses more of the scarce resource

Explanation

Rank by contribution per unit of the limiting factor. X: 24/3 = $8 per machine hour. Y: 30/5 = $6 per machine hour. X ranks first. Ranking by unit contribution ignores the scarce resource and is wrong.

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