Costing Intermediate

System

Can anyone help me with limiting factors, equivalent labour hours and forecasting??

i just got results back from my actual simulation and i failed so i got to retake next month.

please help!!

luce

System

Re:Costing Intermediate

Hi,
Do you remember the question ?
Hope I can help you.

System

Re:Costing Intermediate

Limiting Factors restrict production

If you look at page 21 on this past paper you will see an example:-
http://www.aat.org.uk/servlet/file/Dec_2006_ECR_questions.pdf?ITEM_ENT_ID=38891&COLLSPEC_ENT_ID=34

The company has two products, V and W, that need the same machine mixing process. The
number of available machine hours, however, for this particular mixing machine is limited to
only 3,000 during the next quarter.
The following information is available:
Product V W
Selling price/unit (£) 30 40
Marginal cost/unit (£) 20 25
Machine hours required/unit 2 5
Demand (forecast sales next quarter) 1,000 1,500
Total fixed costs for both products £9,000

Each V has a contribution of £30- £20 = £10 but requires 2 machine hours so actually generates £5 of contribution per machine hour.

Each W has a contribution of £40 - £25 = £15 but requires 5 machine hours so actually generates £3 of contribution per machine hour.

As machine hours are limiting the production we would want to maximise our contribution from there machine hours so:
as Vs generate more contribution than Ws we want to produce as many as we can sell in the machine time available.
Demand is forecast as 1000 for Vs so we would allocate 2 x 1000 = 2,000 hours to V production.

As only 3,000 machine hours are available that leaves 1,000 hours to make as many Ws as we can. Easch W needs 5 hours so we can produce 200 Ws in the time.

In this way the production mix is determined by the limited machine hours.

sandy.hood@chichester.ac.uk