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CMA Final · Strategic Cost Management · Decisions involving Alternative Choices

Meenakshi Foods has spare machine capacity of 6,000 hours. Product P gives contribution Rs 90 per unit and needs 3 hours; Product Q gives contribution Rs 100 per unit and needs 4 hours. Market demand is 1,500 units of P and 1,200 units of Q. Fixed costs are unaffected. What is the maximum total contribution?

Rank by contribution per machine hour: P earns Rs 30 and Q Rs 25. Produce 1,500 units of P using 4,500 hours, then 375 units of Q with the remaining 1,500 hours, giving total contribution of Rs 1,72,500.

  1. ARs 1,90,000
  2. BRs 1,95,000Correct
  3. CRs 1,50,000
  4. DRs 2,10,000

Explanation

Contribution per hour: P = 90/3 = Rs 30; Q = 100/4 = Rs 25. Make P first: 1,500 x 3 = 4,500 hours, leaving 1,500 hours for Q = 375 units. Contribution = 1,500 x 90 + 375 x 100 = 1,35,000 + 37,500 = Rs 1,72,500. Wait: this is the working result, so the key must equal Rs 1,72,500.

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