Question

50 70 24 Question 3 (a) Explain the term "limiting factor" in a production strategy and give four (4) examples (b) Xexe Ltd produces 4 products and is planning its production mix for the next period Estimated cost, sales and production data are shown below: Product A Product B Product Product D Selling Price/unit 80 100 Material @ $4/kg Direct Labour @ GHC2/hr 14 10 3,000 3,000 3,000 Maximum demand (Units) 3,000 Fixed Cost p.a is Ghc10,000 Required: a. Calculate the breakeven point of units for each product b. Calculate the break even mix 34

c. assuming labor hours is a limiting factor in the period, advise management on the most appropriate mix if labor hours is limited to 45,000hrs

d. assuming, material is a limiting factor in the period, advise management on the most appropriate mix if materials is limited to 55,000kgs in the period

e. which product should the company office concentrate more of its materials and labour and why?

Answer 1

a & b		Product A	Product B	Product C	Product D	Total
	Sales per unit	50	70	80	100
	Variable cost per unit(Material + Labour)	18	40	34	34
	Contribution margin per unit	32	30	46	66
	Fixed allocated on the basis of Maximum demand	2500	2500	2500	2500
	Break even point(Fixed cost allocated/CM per unit)	78	83	54	38
c	Maximum demand	3000	3000	3000	3000
	Contribution margin per unit	32	30	46	66
	No. of hours per unit	3	2	7	5
	Contribution margin per hours	10.67	15.00	6.57	13.20
	Ranking based on CM per hour	III	I	IV	II
	Maximum hours required	9000	6000	21000	15000	51000
	Allocation of 45,000 labour hours based on ranking	9000	6000	15000	15000	45000
d	Maximum demand	3000	3000	3000	3000
	Contribution margin per unit	32	30	46	66
	Materials per unit	3	9	5	6
	Contribution margin per material	10.67	3.33	9.20	11.00
	Ranking based on CM per material	II	IV	III	I
	Maximum materials	9000	27000	15000	18000	69000
	Allocation of 45,000 labour hours based on ranking	9000	3000	15000	18000	45000
e	The company concentrate on Product D as it has the highest contribution margin per unit