Page 386 - PM Integrated Workbook 2018-19
P. 386
Chapter 15
Chapter 4
Example 1
A company produces three products, and is reviewing the production and
sales budgets for the next accounting period. The following information is
available for the three products:
Product P Product Q Product R
$ $ $
Selling price 600 300 100
Labour ($20 per hour) (300) (160) (40)
Other variable costs (90) (68) (14)
––––– ––––– –––––
Total variable costs (390) (228) (54)
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Contribution per unit 210 72 46
Maximum demand (units) 200 600 1,000
Labour hours are strictly limited to 7,800 hours in total.
Calculate the optimum product mix and the maximum contribution.
Product P Product Q Product R
Contribution per unit $210 $72 $46
Hours per unit 15 8 2
Contribution per hour $14 $9 $23
Rank 2nd 3rd 1st
Units Hours per Total hours Contribution Total
unit per hour contribution
R 1,000 2 2,000 $23 $46,000
P 200 15 3,000 $14 $42,000
Q 350 8 2,800 $9 $25,200
7,800 $113,200
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