Assessment 2 question 1.7

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.

Pian32 said:

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