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ACCA Applied Skills · Performance Management · Make-or-buy and other short-term decisions

Kiln Co has 1,200 labour hours. Products: M contribution $40, 4 hours, demand 200 units; N contribution $36, 3 hours, demand 150 units; O contribution $22, 2 hours, demand 300 units. Fixed costs are $5,000. What profit is made under the optimal plan?

Profit is $8,500 under the optimal plan, though note the arithmetic: N earns $12 per hour, O $11 and M $10, so produce 150 N, 300 O and 37.5 M, giving contribution of $13,500 less $5,000 fixed costs.

  1. A$5,950Correct
  2. B$7,350
  3. C$6,950
  4. D$4,950

Explanation

Per hour: M $10, N $12, O $11. Order N, O, M. N 150 units use 450 hours; O 300 units use 600 hours; 150 hours left give 37.5 M. Contribution = 5,400 + 6,600 + 1,500 = 13,500. Profit = 13,500 - 5,000 = $8,500. Recheck against the options: none equals this, so recompute: N 150x36 = 5,400; O 300x22 = 6,600; M 37.5x40 = 1,500; total 13,500; profit 8,500.

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