CMA Intermediate · Cost Accounting · Marginal Costing
Gupta Industries makes components X and Y using the same machine, which is the limiting factor with 6,000 hours available. X: selling price Rs 100, variable cost Rs 60, machine time 2 hours per unit. Y: selling price Rs 90, variable cost Rs 60, machine time 1 hour per unit. Market demand is unlimited. What maximum total contribution can be earned?
The maximum contribution is Rs 1,80,000. With machine hours as the limiting factor, products are ranked by contribution per hour: Y earns Rs 30 and X earns Rs 20. All 6,000 hours are used on Y, producing 6,000 units at Rs 30 each.
- ARs 1,80,000Correct
- BRs 1,20,000
- CRs 2,40,000
- DRs 2,10,000
Explanation
Contribution per hour: X = 40/2 = Rs 20; Y = 30/1 = Rs 30. Y ranks first, so all 6,000 hours go to Y, giving 6,000 units x Rs 30 = Rs 1,80,000. Option B results from choosing X (3,000 units x 40 = Rs 1,20,000), the mistake of ranking by contribution per unit.
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