Calculating Total Contribution

jewels.p

When calculating the Total Contribution earned when doing Limiting Factors I finally thought I had got my head around it and thought that you calculated this by taking the volume of each product made and multiplying this by the contribution per unit NOT the contribution per limiting factor but when looking over June 2008 Exam Paper the answer is calculated by multiplying it BY THE CONTRIBUTION PER LIMITING FACTOR! Aaaaargh!

Advice anyone?

SandyHood

YOUR STATEMENT IS CORRECT
Total contribution =

you calculated this by taking the volume of each product made and multiplying this by the contribution per unit

Sales volume (units)...... 150,000 of A.............. 500,000 of B

Contribution per unit...... £1.03/unit of A ...... £0.62 /unit of B

jewels.p

SandyHood wrote: »

YOUR STATEMENT IS CORRECT
Total contribution =


Sales volume (units)...... 150,000 of A.............. 500,000 of B

Contribution per unit...... £1.03/unit of A ...... £0.62 /unit of B

Where do you get the 150000 of A and the 500,000 of B figures from? I tried multiplying the Machine Hours per Unit by the Machine Hours allocated as I thought this would give me the amount of Units but that gave me 6000.

When I tried to figure out where I went wrong with the Total Contribution earned I tried multiplying the Contribution per Machine Hour (Limiting Factor) by the Machine Hours allocated and it gave me the right answer. This is totally confusing me now!

Thanks again

SandyHood

I'm sure you started the production mix calculation by focussing on the 70,000 machine hours.
And then recognised that the contribution per machine hour would be the way of sharing out the 70,000 hours to maximise total profit.

So A will earn £1.03 per unit and as 0.20 hours are needed per unit, so each machine hour used for prioducing As. This is £5.15 per machine hour.

B earns £0.62 per unit (but a lot more can be made from every machine hour) so B production earns £7.75 per machine hour.

On this basis we would rather produce Bs than As. But task 2.2 tells us that we can't sell more than 500,000. So allocate 0.08 x 500,000 machine hours to B production. (40,000 hours)

There are 30,000 hours left. We'll use that for A production.

As each A requires 0.2 hours the 30,000 hours enables us to produce 150,000 units of A
As each B requires 0.08 hours the 40,000 hours enable us to produce 500,000 units of B.

jewels.p

SandyHood wrote: »

I'm sure you started the production mix calculation by focussing on the 70,000 machine hours.
And then recognised that the contribution per machine hour would be the way of sharing out the 70,000 hours to maximise total profit.

So A will earn £1.03 per unit and as 0.20 hours are needed per unit, so each machine hour used for prioducing As. This is £5.15 per machine hour.

B earns £0.62 per unit (but a lot more can be made from every machine hour) so B production earns £7.75 per machine hour.

On this basis we would rather produce Bs than As. But task 2.2 tells us that we can't sell more than 500,000. So allocate 0.08 x 500,000 machine hours to B production. (40,000 hours)

There are 30,000 hours left. We'll use that for A production.

As each A requires 0.2 hours the 30,000 hours enables us to produce 150,000 units of A
As each B requires 0.08 hours the 40,000 hours enable us to produce 500,000 units of B.

I think I understand but am I correct in thinking that when doing the Total Contribution you get the right answer by multiplying the Total Limiting Factor by the Contribution per Limiting Factor?
Sorry to be a pain.
Thanks
Julie

SandyHood

Julie
When you wrote:

Take the volume of each product made and multiply this by the contribution per unit NOT the contribution per limiting factor

You were right

This is not so useful

multiplying the Total Limiting Factor by the Contribution per Limiting Factor

SandyHood

There may be some forumites who can see the arithmetical similarity of say
hours allocated x contribution per hour

But (in the hope of staving off such comments) this ignores whether the output is in whole products

So stick with
units to be produced x contribution per unit