FINANCIAL PERFORMANCE Contribution question...

gabriellenlewis

Tig (£ per unit) Tag (£ per unit)
selling price 4000 4950
Variable Costs
material costs (£400 per kg) 2400 3000
Labour cost 400 600
Total VC 2800 3600
Fixed Costs
production cost 450 450
admin costs 300 300
Total FC 750 750
Profit per unit 450 600

Monthly Demand 200 units 300 units

So, i understand conritbution (Selling price - variable cost) but it then asks for the optimal production order?
And also the optimal production mix (in units).

Please explain. Thanks!

Adele69

Have you worked out the Contribution per limiting factor? I'm at work and only have my Budgeting notes, think it was Direct Materials and Tig then Tag, all of Tig's units and remaining kgs available for Tag, depending on the kgs used per unit, 180 is coming to mind but dont quote me on it.

gabriellenlewis

Sort, contribution per unit is 200 for Tig and 180 for Tag (I think)

Adele69

Ah yes, got home and found my notes.

Tig uses 6kg p/u; Contribution £200 p/u
Tag uses 7.5kg p/u; Contribution £180 p/u

Limiting factor: 3000kg

Tig 200 units x 6kg = 1200kg
remainder = 1800kg/7.5kg = 240 (of 300) units

Charlie1701

Hi,
Would you be able to tell me how you worked out the, 'Contribution per kilogram of material', for Tig and Tag please?

Charlie1701

Hi,

I think I might have worked it out
The Contribution per unit divided by the number of Kilos in the unit

I hope...