Assessment 2 question 1.7

Rose20

Could someone please help me with how they got the answer for optimal production (units) and the maximum profit? I attached the picture

Norvydas

Hi @Rose20,

Optimal Production Units;
You have 1,600kg of Material Available. The first product you will produce is the product that has higher contribution per limiting factor rate. Therefore Product Y will be the 1st product we will produce, then Z & X. Okay so we have 1,600 kg material, to produce Product Y in full we need 480kg, we have 1,600 kg available, therefore we can produce all 600 required units of Product Y. Now we have left 1,120 kg of material available. To produce product Z we need 720kg, we have that therefore we can produce product Z in full aswell, Now we are left with 400kg of available material. To produce Product X in full we need 800kg of material, however we only have 400kg therefore we can only produce half of product X (200units).

Maximum Profit;

Product Y - 600 produced units x £1.60 = £960
Product Z - 400 produced units x £2.70 = £1,080
Product X - 200 produced units x £2.50 = £500

Profit; £2,540
Fixed Costs; £755
Revised Profit; £1,785


P.S. You are probably wondering why we are using Contribution Per Unit £ cost when working out the profit rather than Contribution Per Limited Factor £ cost, it's because the contribution we will receive in regards of profit is measured by Contribution Per Unit cost. Contribution Per Limited Factor cost is only used when we have limited availability of material or labour to see which product is most beneficial in producing in respect of material / labour shortage.

Hope this helps.

Casu777

Do you know how to rank the products for the order of production?

Rose20

yes! Thank you I just worked out the optimal production
Could you help me with the maximum profit? (b)

Rose20

@Norvydas thank you very much! That was very helpful and I now understand it ☺️

Rio

How do you work out contribution per limiting factor ? cant work it out

Norvydas

@Rio screenshot the question where it asks you to work it out and I'll break it down for you.

sophie_612

Norvydas said:

Hi @Rose20,

Optimal Production Units;
You have 1,600kg of Material Available. The first product you will produce is the product that has higher contribution per limiting factor rate. Therefore Product Y will be the 1st product we will produce, then Z & X. Okay so we have 1,600 kg material, to produce Product Y in full we need 480kg, we have 1,600 kg available, therefore we can produce all 600 required units of Product Y. Now we have left 1,120 kg of material available. To produce product Z we need 720kg, we have that therefore we can produce product Z in full aswell, Now we are left with 400kg of available material. To produce Product X in full we need 800kg of material, however we only have 400kg therefore we can only produce half of product X (200units).

Maximum Profit;

Product Y - 600 produced units x £1.60 = £960
Product Z - 400 produced units x £2.70 = £1,080
Product X - 200 produced units x £2.50 = £500

Profit; £2,540
Fixed Costs; £755
Revised Profit; £1,785


P.S. You are probably wondering why we are using Contribution Per Unit £ cost when working out the profit rather than Contribution Per Limited Factor £ cost, it's because the contribution we will receive in regards of profit is measured by Contribution Per Unit cost. Contribution Per Limited Factor cost is only used when we have limited availability of material or labour to see which product is most beneficial in producing in respect of material / labour shortage.

Hope this helps.

do anyone know how they got fixed costs of £755 for the revised profit?

Thanks

Pian32

It's given in the question. Last line of the initial text.

sophie_612

Pian32 said:

It's given in the question. Last line of the initial text.

thank you so much didnt read question properly

Annaoj90

Hi @Rose20
Where did you get this Task 1.7 regarding limiting factors from?
I’m using Kaplan and couldn’t see this one in my study material

Thanks
Joanna

Mannaesi

hey@Norvydas and others ,can you kindly also help me with payback and net present value calculations if perhaps you covered it,