CA Intermediate · Cost and Management Accounting · Marginal Costing
Sundaram Appliances makes products A and B, both processed on one machine limited to 12,000 hours. A sells at ₹120 with variable cost ₹80 and needs 2 hours per unit. B sells at ₹150 with variable cost ₹90 and needs 3 hours per unit. Maximum demand is 4,000 units of A and 4,000 units of B. Fixed costs are ₹2,00,000. What is the maximum profit?
This question is flawed and should not be used: the correct profit is ₹40,000, which is not among the options.
- A₹1,60,000Correct
- B₹1,20,000
- C₹2,40,000
- D₹1,00,000
Explanation
Contribution per hour: A = 40/2 = ₹20; B = 60/3 = ₹20. Both rank equal, so any full use of 12,000 hours gives 12,000 x 20 = ₹2,40,000 contribution. Profit = 2,40,000 - 2,00,000 = ₹40,000. Check against options: A 4,000 units uses 8,000 hours, B 1,333 units uses 4,000 hours; contribution 1,60,000 + 80,000 = 2,40,000. Profit is ₹40,000, which is not listed; so recompute with fixed costs ₹2,00,000: no option matches, and the key given (₹1,60,000) is the contribution of A alone, not the profit.
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