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Contribution per limiting factor
EmilyRose
AAT Student, AATQB Posts: 11
Hello, can anyone answer this for me? I had £27750 and my tutor had £20250, however we didn’t have time to go through the workings! Thanks in advance!
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Best Answer
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CornishPixie
Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
Ok, so we know that it takes 1.5 hours to make a unit and that the company wants to make 6,000 units in total. That will require 6,000 x 1.5hours = 9,000 hours in total.
We already know that there is enough hours to produce 4500 units. If we multiply 4,500 x 1.5 hours = 6,750.
So, 6,750 hours have been used to make 4500 units. But we need 9,000 hours to make 6000 units.
9,000 - 6,750 = 2,250 hours which will be required for the remaining units
2,250 hours x £9 = 20250
Hope that helps!5
Answers
So Sammy has direct materials of £16, direct labour of £7.50 variable overheads of 3, fixed production overheads of 2.50, selling price of £40 sales demand of 6000 units. Requires 1.5 hours/unit, only enough hours to make 4500 units, however you can have 1500 extra hours of labour. What is the max price you would pay for this?
Contribution per unit £13.50/unit contribution per limiting factor £9.00/unit
Im still confused as Osborne is giving me conflicting information of the most you'd pay for extra units of a limited factor would be the original unit cost + the contribution? £5/hour + £9/contribution
TIA