ACCA Applied Knowledge · Management Accounting · Budget preparation
Kestrel Co makes three products with the following data per unit: Product A contribution $24, uses 4 labour hours; Product B contribution $20, uses 2 labour hours; Product C contribution $27, uses 3 labour hours. Labour hours are the only limiting factor. What is the correct production priority order?
The priority order is B, C, A. When labour hours are the limiting factor, products are ranked by contribution per labour hour: B earns $10, C earns $9 and A earns $6. Ranking by contribution per unit would wrongly put C first.
- AB, C, ACorrect
- BC, A, B
- CA, C, B
- DB, A, C
Explanation
Contribution per labour hour: A = 24/4 = $6; B = 20/2 = $10; C = 27/3 = $9. Ranking highest first gives B, C, A. Ranking by contribution per unit (C, A, B) ignores the scarce resource.
Did you get it right without looking?
One question tells you little. A timed set on Budget preparation shows your real accuracy, how long you take and where you lose marks.
More Budget preparation questions
- A company uses a rolling budget of four quarters, updated each quarter. The original annual budget for quarters 1 to 4 had direct labour of …
- Zeta Co plans to produce 4,000 units of Product K next month. Each unit needs 3 kg of material, and 10% of the material input is lost as nor…
- Brook Co budgets to make 6,000 units. Each unit requires 3 standard hours of direct labour. Workers are expected to be idle for 10% of the h…
- Zeta Co budgets to sell 8,000 units next period. Opening inventory of finished goods is 1,500 units and closing inventory is planned at 2,30…
- A company uses a rolling budget with quarterly updates. The annual budget for Year 1 was prepared in December. At the end of Quarter 1, the …
- Which statement about the materials purchases budget is correct?