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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

A company makes two products with limited machine hours. Product X has contribution ₹40 per unit and needs 4 machine hours; Product Y has contribution ₹36 per unit and needs 3 machine hours. Which ranking is correct for production priority?

Product Y should be produced first. When machine hours are the limiting factor, products are ranked by contribution per machine hour: Y earns ₹12 per hour and X earns ₹10 per hour, so Y gives more contribution from scarce hours.

  1. AY first, because contribution per machine hour is ₹12 against ₹10 for XCorrect
  2. BX first, because its contribution per unit is higher
  3. CX first, because it uses more machine hours
  4. DBoth equal, because total contribution is the same

Explanation

With machine hours as the limiting factor, rank by contribution per hour. X = 40/4 = ₹10; Y = 36/3 = ₹12. So Y has priority, and ranking by contribution per unit is misleading.

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