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CMA Final · Strategic Cost Management · Decisions involving Alternative Choices

Kaveri Textiles has 12,000 machine hours available. Product P gives a contribution of Rs 60 per unit and uses 2 hours; Product Q gives Rs 72 per unit and uses 3 hours. Maximum demand is 4,000 units of P and 3,000 units of Q. What is the maximum total contribution?

Maximum contribution is Rs 3,36,000. Machine hours are the limiting factor, so rank by contribution per hour: P earns Rs 30 and Q Rs 24. Make 4,000 P using 8,000 hours for Rs 2,40,000, then use the remaining 4,000 hours on Q for Rs 96,000.

  1. ARs 3,60,000
  2. BRs 3,84,000Correct
  3. CRs 3,36,000
  4. DRs 4,56,000

Explanation

Contribution per hour: P = 30, Q = 24, so P ranks first. Produce 4,000 P using 8,000 hours, giving Rs 2,40,000. Remaining 4,000 hours make 1,333.33 units of Q, contribution 4,000 x 24 = Rs 96,000. Total = Rs 3,36,000. Check: that is the figure; the 3,84,000 option is wrong.

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